GST discussion paper: A first step towards ensuring clarity

The much-awaited white paper on dual GST, officially called a discussion paper and that too the first one, has been officially released. The paper sets out in an authoritative fashion the background and the context for the introduction of GST, the nature of dual GST that is proposed and an annexure on answers to frequently asked questions. This article is limited to discussing the nature of the dual GST as elaborated in Section 3 of the paper.

The dual GST predicates a central GST (CGST)���to be levied by the Centre, and a state GST (SGST)���to be levied by a state, on all transactions of goods and services throughout the supply chain. Thus, two taxes, one at the central level and the other at the state level, will apply, at rates yet to be made known, on every single transaction of goods and services. The exception to this general rule is with regard to inter-state supply of goods and services which will be charged just one tax���to be called the inter-state GST (IGST), which will be the aggregate of the CGST and SGST payable on such supplies.

The CGST and SGST payable on each transaction would be paid respectively to the central and the state governments. Appropriate input tax credit offsets will be available against each such tax. Thus, the CGST on inputs will be eligible to be set off against the CGST on outputs and the SGST on inputs will be eligible to be set off against the SGST on outputs. No cross-utilisation will be possible across the two taxes. However, cross-utilisation within each tax across goods and services would be possible. The paper recommends a threshold level of turnover of Rs 10 lakh with regard to the SGST and a much higher level of Rs 1.5 crore of turnover for the CGST. There are also recommendations with regard to compounding of the tax. There are also recommendations on extension of the GST to tobacco and on treatment of alcohol and petroleum products. The paper is, however, silent on the GST rates and the date of implementation of the dual GST.

In sum, an excellent first paper with much more to follow presumably.

(The author is leader, indirect tax practice, PricewaterhouseCoopers, India)