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17-December-2015
Why CGST, SGST and IGST in India and Principle of Subsumation of Taxes

It is a known fact that Dual VAT/GST Model has been sought to be brought in place in India. The common thought of people of the country is that why National VAT/GST has been brought instead of Dual VAT/GST It is a known fact that Dual VAT/GST Model has been sought to be brought in place in India. The common thought of people of the country is that why National VAT/GST has been brought instead of Dual VAT/GST and does the lawmaker’s were not farsighted enough about the option of National GST rather than Dual GST. It also appeared to public at large that why when the people of the country with little knowledge about taxation structure could see the benefits of National GST, could the lawmakers who deemed to have the expertise in the subject not see the benefits of National GST in place of Dual GST. It’s only the half picture that we see. The two models of GST i.e. Dual GST and National GST were both considered in the year 1994 before the implementation of State VAT. After detailed discussion as narrated below Dual GST with independent taxation powers to Centre and State upto a certain part of supply chain with full fledged Credit Mechanism under Excise and State VAT was implemented with an eye on the future for a full fledged Dual GST in the country and National GST was discarded deeming it inappropriate in India. So what is National GST or Dual GST and what are the merits and the demerits of the same and why Dual GST has been preferred over the National GST. The reason for bringing in SGST and CGST also lies in the same answer as well. 
 

♣ What is National VAT/GST:

The Bagchi Report i.e. the Report on “Reform of Domestic Trade Taxes in India: Issues and Options”, National Institute of Public Finance and Policy, New Delhi described National GST as follows:

“A National VAT – VAT as a National levy implemented through a Parliamentary legislation and administered by the Centre (or the States on behalf of the Centre)replacing both Central excise and sales tax, covering all goods and services, with arrangement for revenue sharing.”

The report further went on to provide that

“A unified system of taxing domestic trade in the form of a national VAT imposed and administered by the Centre would appear to be most attractive from many angles. It would, at one stroke, bring about harmonization and help remove the tax on inter-State trade.”

It would be pertinent here to provide that National GST/VAT is presently in place in Australia, Germany, Austria, Switzerland etc.

  • Why National VAT/GST was not implemented and was ill favored by the lawmakers:

The big question arises that why the law makers implemented Dual GST Model and National GST i.e. one common GST model was not brought in place in the country.

To understand it better, we would have to consider an hypothetical example wherein entire revenue from the taxes in the country say Rs 5 Lakh Crore revenue is administered and imposed by Centre and which is to be distributed by the Centre between all the States and Centre on an appropriate basis.

One possible scenario in the given situation is that some of the States might get the desired revenue and some would not be satisfied and allegations would then be levied regarding political backlash etc. It could be a harsh reality that leaving aside the States ruled by Political Party ruling the Centre might feel short charged in the entire scheme of distribution of revenue.

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