Single v/s Dual GST- Which is better?
Single v/s Dual GST- Which is better?
Dual GST or single? That is the question plaguing economists and tax analysts nowadays. With the GST bill being hotly debated in the Parliament, indirect taxation as a system seems to be cooling off. But how good is dual GST for the nation? Is it the only alternative? Taxing times are ahead for the Indian economy if the right mode of this VAT is not adopted. What are the economic implications of single versus dual GST? In the clash between the two, who emerges supreme? Let’s find out.
Dual GST is better
1. Simple and transparent tax : Dual GST is the best solution for countries like India because it will reduce the number of taxes at central and state level. This will also be easy to implement and create accountability for.
2. Decreasing tax rate : Dual GST will also result in reduction in the effective tax rates for many goods.
3. Removal of cascading effect of taxes : The implementation of GST will reduce the cascading effects of the present taxation system
4. Simplified tax compliance : By reducing the transaction costs of taxpayers, dual GST will bring about simplified tax compliance.
5. Increase in the amount of tax collection : Better compliance and a wider tax base will lead to increased tax collections
6. India is a federal country with disparate states : Dual GST is ideally suited for a country like India to ensure unity through diversity. Single point GST is neither desirable economically nor practical administratively, because it means central excise duty, sales tax and service tax will be merged to be collected as a single tax.
7. Questions about the Constitution : The Constitution of India does not permit the Centre to be in charge of sales tax and states similarly are not permitted to levy central excise duty and service tax. If the Constitution is amended to combine all taxes in 1 list( whether Union/State/Concurrent), present federal structure will change fundamentally. This is because the Centre will levy everything if it goes to the Union List and the States would not agree to this. If this goes to the State List, Centre will protest against loss of fiscal power. Concurrent list would be even bigger problem with no one being able to control the power of states to increase taxation rates.
8. Upset fiscal federalism : If dual GST is not adopted and a unified GST system is preferred, this will upset the notion of fiscal federalism which is the fundamental cornerstone of India polity. Moreover, the fundamental structure of the Constitution cannot be changed through an amendment. Unified GST would therefore go against the spirit of the Constitution
9. Unified GST does not exist in most federal States : With the exception of Australia, unified GST system does not exist in any nation with a federal structure. Countries that have combined GST are unitary states mostly. Though Canada has a single federal GST, it also has states sales taxes and Brazil does not follow a pure single GST system either.
10. Who will collect the GST? : This becomes an issue if single point GST is implemented. States will not allow Centre to be sole tax authority. System will malfunction further if tax collection services at Union and State level are merged.
11. Dual GST most practical for federal India : As Centre already levies CENVAT and tax services, CGST will work well with some harmonisation as will SGST with symmetry in a dual GST system.
12. Easily attainable : The dual GST system is easy to attain in the current structure, given that India is following an indirect taxation system. Certain amendments may be required, but on the whole, the transition will be easier.
13. Good balance : The dual GST will strike a good balance between need for harmonisation and fiscal autonomy of Centre and States. Both levels of Government will be able to apply taxes to goods and services at various points in the supply chain.
14. Least changes, most benefits : Dual GST will provide a competitive atmosphere for companies to work on an international scale. Moreover, single taxation system will also reduce costs to customers
15. Single point GST will impair Centre’s revenues : Dual GST will prevent a dent in the Centre’s revenue. Reduction in fiscal transfers will offset losses and Centre will also have access to revenue resources for future needs. Any other option may not be revenue neutral for state
16. Better for business : Single GST will mean that businesses will have to comply with different task laws for different states and this will affect business stability
17. Undermines States powers, is not workable : Unhealthy competition can result among states using tax structures to attract industries if single GST is implemented. Dual GST is more workable and a complete withdrawal of Centre from State’s taxation could impair the ability of the latter to collect revenue in a symmetrical manner.
Single GST is better
1. Dual GST not an ideal model : It can only be a transitional model as tax would be levied at two levels and compliance costs may not lessen significantly.
2. Comprehensive model of Single GST better : This GST format is a comprehensive model for taxation of inter and intra state transactions of services and goods.
3. Taxation of services at state level a challenge in dual GST : This is more so for services that are provided nationwide such as telecommunications and transportation.
4. Prevent economic distortions : A single/unified GST would be levied at a single rate thereby doing away with classification disputes and economic distortions.
5. Freeing up of resources : Reduction in compliance costs would open up resources for more productive pursuits besides making India a one tax nation and common markets a reality. There would also be free distribution of goods and services with lack of checkpoint or internal tax frontiers and other barriers to trade.
6. One rate, one base : One set of rules will form the essence of a unified GST. It will also promote harmonisation of tax rates, bases and administration.
7. Inter state variations to lessen : Indian experience with inter-state variation has been less than positive For example there is substantial diversion of gold and silver sales in areas where VAT is lower compared to other states. Such variations would be problematic in terms of taxation of service elements of a unified GST would also be ideal from a business perspective as stability in decision making will result
8. Minus the cascading effects : Cascading effects would be contained as there would be no tax at two levels.
9. Increase customer awareness : Customer will know how much is the indirect tax burden in goods and services consumed by him.
Conclusion
Operating SGST and CGST from a common base through a concurrent dual GST would kill two birds with one stone. On the one hand, it would secure fiscal autonomy of states and on the other, it would preserve the regulatory powers of the Centre. Dual GST scores over single in many respects. Whether the parliamentarians pass this revolutionary Bill is the next big question.
