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Past and present scenario of Indirect Taxes in INDIA and Future proposed GST (Goods and Service Tax ) scenario in INDIA.
India is a federal country and taxation powers of Central Government and State Governments have been defined clearly in the constitution of India.
Following are the Indirect Taxes collected by the Central Government :-
a. Central Excise Duty on manufacture of goods except alcohol.
b. Service Tax on provision of services
c. Custom Duty on imported goods
d. Additional Customs Duty, commonly known as Countervailing Duty (CVD)
e. Special Additional Duty of Customs - 4% (SAD)
f. The Excise Duty levied under the Medicinal and Toiletries Preparation Act
g. Surcharges and Cesses etc.
Following are the Indirect Taxes collected by the State Governments :-
a. VAT (Value added taxes) on sale of goods
b. Purchase tax (In some states)
c. CST (Central Sale Taxes) on interstate sale of goods
d. State Excise Duty on Manufacture of alcohol
e. State Cesses and Surcharges in so far as they relate to supply of goods and services.
f. Many other indirect taxes i.e. Entertainment Tax, Luxury Tax, Taxes on lottery, betting and gambling, Entry Tax, Electricity Tax and Stamp Duty etc.
There was a burden of cascading effect of Taxing (tax on tax) in the pre-existing Central excise duty of the Government of India and sales tax system of the State Governments. The Central Government introduced MAN-VAT (Manufacture VAT), later named as MODVAT (Modified VAT) for some specified number of manufactured products. As per the MANVAT or MODVAT the Central excise duty paid on inputs could be taken as credit for subsequent payment of duty on output of some specified manufactured products. IN 2002 MODVAT was extended to all manufactured products and came to be known as CENVAT (Central VAT). In between Service Tax on provision/supply of very few services was introduced in 1994 , and credit on service tax paid on input services was allowed for payment of service tax on output services. After than in 2004 tax paid on input services was allowed to be utilized for payment of Central Excise duty on manufacture of goods and vice versa.
The states were also collecting Sales Tax on sale of goods starting from the 1st sale from factory/manufacturing unit till these products were sold in retail to the consumers. In 2005 the State VAT introduced in different state by subsuming Sales Tax and certain other indirect taxes on goods (I.e. WCT etc.) and by 2008 all the states and union territory implemented VAT.
The introduction of Central VAT (CENVAT) has removed the cascading burden of "tax on tax" to some extent by providing a mechanism of "set off" for tax paid on inputs and services upto the stage of production, and has been an improvement over the pre-existing Central excise duty. And likewise, the introduction of VAT in the States helped to remove the cascading effect by giving set-off for tax paid on inputs as well as tax paid on previous purchases and has again been an improvement over the previous sales tax regime.
But both the CENVAT and the State VAT have their own certain incompleteness. The incompleteness in CENVAT is that it has yet not been extended to include chain of value addition in the distributive trade below the stage of production. It has also not included several Central taxes, such as Additional Excise Duties, Additional Customs Duty, Surcharges etc. in the overall framework of CENVAT, and thus kept the benefits of comprehensive input tax and service tax set-off out of the reach of manufacturers/ dealers. The introduction of GST will not only include comprehensively more indirect Central taxes and integrate goods and services taxes for set-off relief, but also capture certain value addition in the distributive trade.Similarly, in the present State-level VAT scheme, CENVAT load on the goods has not yet been removed and the cascading effect of that part of tax burden has remained unrelieved. Moreover, there are several taxes in the States, such as, Luxury Tax, Entertainment Tax, etc. which have still not been subsumed in the VAT. Further, there has also not been any integration of VAT on goods with tax on services at the State level with removal of cascading effect of service tax. In addition, although the burden of Central Sales Tax (CST) on inter-State movement of goods has been lessened with reduction of CST rate from 4% to 2%, this burden has also not been fully phased out. With the introduction of GST at the State level, the additional burden of CENVAT and services tax would be comprehensively removed, and a continuous chain of set-off from the original producer's point and service provider's point upto the retailer's level would be established which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax.
This is the essence of GST. Also, major Central and State taxes will get subsumed into GST which will reduce the multiplicity of taxes. With GST, the burden of CST will also be phased out. Thus GST is not simply VAT plus service tax, but a major improvement over the previous system of VAT and disjointed services tax.
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