A consumption tax is a tax on spending on goods and services.

The tax baseof such a tax is the

money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a value
added tax. However, a consumption tax can also be structured as a form of direct, personal taxation,
such as the HallRabushka flat tax.
The HallRabushka flat tax is a flat tax proposal on consumption designed by American
economists Robert Hall and Alvin Rabushka at the Hoover Institution.[1] The HallRabushka proposal
involves taxing income and then excluding investment.

Sales tax[edit]
A sales tax typically applies to the sale of goods, less often to the sales of services. The tax is
applied at the point of sale. Laws may allow sellers to itemize the tax separately from the price of the
goods or services, or require it to be included in the price (tax-inclusive). The tax amount is usually
calculated by applying a percentage rate to the taxable price of a sale. When a tax on goods or
services is paid to a governing body directly by a consumer, it is usually called a use tax. Often laws
provide for the exemption of certain goods or services from sales and use tax.

Excise tax[edit]
An excise tax is a sales tax that applies to a specific class of goods, typically alcohol, gasoline
(petrol), or tourism. The tax rate varies according to the type of good and quantity purchased and is
typically unaffected by the person who purchases it.
A use tax is a type of excise tax levied in the United States by numerous state governments. Use
tax is essentially the same as sales tax, but is applied not where a product or service was sold, but
rather where a merchant bought a product or service then converted it for its own use but without
having paid tax when it was initially purchased.
The Organisation for Economic Co-operation and Development (OECD) (French: Organisation
de coopration et de dveloppement conomiques,OCDE) is an intergovernmental economic
organisation with 35 member countries, founded in 1961 to stimulate economic progress and world
trade. It is a forum of countries describing themselves as committed to democracy and the market
economy, providing a platform to compare policy experiences, seeking answers to common
problems, identify good practices and coordinate domestic and international policies of its members.

Head Quarters Paris

A value-added tax (VAT) or goods and services tax (GST) is a popular way of implementing
a consumption tax in Europe, Japan, and many other countries. All OECD countries except the
United States have a value-added tax. It differs from the sales tax in the sense that taxes are applied
to the difference between the seller-purchased price and the resale price. This is accomplished by
taking full tax on all sales, but refunding the tax difference to the sellers.

The VAT is an alternative to a sales tax and is meant to deal with a specific problem. With a sales
tax, a business selling goods is responsible for making a subjective decision about the intent of a
buyer, the business may not be fully competent to make the decision.
If buyers intend to consume the goods themselves, then the seller must collect a tax on the
purchase price. If instead buyers intend the goods as capital goods, to be resold at a profit after
adding value to them, then the seller must not collect the tax.
A VAT is like a sales tax, but in that, ultimately only the end consumer is taxed. It differs from the
sales tax in that with the sales tax, the tax is collected and remitted to the government only once, at
the point of purchase by the end consumer. With the VAT, on the other hand, collections of money,
remittances to the government, and credits for taxes that are already paid occur each time a
business in the supply chain purchases products.
The most fundamental attribute of the VAT invoice-credit method is the right of registered persons to
claim input tax credit (ITC). The ITC process allows them to offset the total Input VAT against the total Output
VAT when filing the VAT return for an accounting period.
Offset - a consideration or amount that diminishes or balances the effect of an opposite one.

A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit
from the total they owe the state.

GST
The Goods and Services Tax Bill or GST Bill, officially known as The Constitution (One Hundred
and Twenty-Second Amendment) Bill, 2014, proposes a national Value added Tax to be
implemented in India[1] from 1 April 2017.[2][3]
"Goods and Services Tax" would be a comprehensive indirect tax on manufacture, sale and
consumption of goods and services throughout India, to replace taxes levied by
the central and state governments. Goods and Services Tax would be levied and collected at each
stage of sale or purchase of goods or services based on the input tax credit method. This method
allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of
goods or services as part of their normal commercial activity. Taxable goods and services are not
distinguished from one another and are taxed at a single rate in a supply chain till the goods or
services reach the consumer. Administrative responsibility would generally rest with a single
authority to levy tax on goods and services.[4] Exports would be zero-rated and imports would be
levied the same taxes as domestic goods and services adhering to the destination principle.
The introduction of Goods and Services Tax (GST) would be a significant step in the reform of
indirect taxation in India. Amalgamating several Central and State taxes into a single tax would

mitigate cascading or double taxation, facilitating a common national market. The simplicity of the tax
should lead to easier administration and enforcement. From the consumer point of view, the biggest
advantage would be in terms of a reduction in the overall tax burden on goods, which is currently
estimated at 25%-30%,[5] free movement of goods from one state to another without stopping at state
borders for hours for payment of state tax or entry tax and reduction in paperwork to a large extent.
What changes there would be if India launches GST- The tax rate under GST may be nominal or
zero rated for the time being. It has been proposed to insulate the revenues of the States from the
impact of GST, with the expectation that in due course, GST will be levied on petroleum and
petroleum products. The central government has assured states of compensation for any revenue
losses incurred by them from the date of introduction of GST for a period of five years.

[6]

As India is a federal republic GST would be implemented concurrently by the central government
and by state governments.[7]
An empowered company was set up by the Atal Bihari Vajpayee government in 2000 to streamline
The GST model to be adopted and to develop the required backend infrastructure that would be
needed for its implementation.[8][9]
In his budget speech on 28 February 2006, P. Chidambaram, the then Finance Minister, announced
the target date for implementation of GST to be 1 April 2010 and formed another empowered
committee of State Finance Ministers to design the roadmap. The committee submitted its report to
the government in April 2008 and released its First Discussion Paper on GST in India in 2009. [8]
The Constitution (122nd Amendment) Bill, 2014 was introduced in the Lok Sabha by Finance
Minister Arun Jaitley on 19 December 2014, and passed by the House on 6 May 2015. In the Rajya
Sabha, the bill was referred to a Select Committee on 14 May 2015. The Select Committee of the
Rajya Sabha submitted its report on the bill on 22 July 2015. The bill was passed by the Rajya
Sabha on 3 August 2016, and the amended bill was passed by the Lok Sabha on 8 August 2016. [10]
The bill, after ratification by the States, received assent from President Pranab Mukherjee on 8
September 2016.[11][12]

Ratification
The Act was passed in accordance with the provisions of Article 368 of the Constitution, and has
been ratified by more than half of the State Legislatures, as required under Clause (2) of the said
article. On 12 August 2016, Assam became the first state to ratify the bill, when the Assam
Legislative Assembly unanimously approved it.[13][14] State Legislatures that ratified the amendment
are listed below:[15]

1. Assam (12 August)

2. Bihar (16 August)[16][17]
3. Jharkhand (17 August)[18]
4. Himachal Pradesh (22 August)[19]
5. Chhattisgarh (22 August)[20]
6. Gujarat (23 August)[21]
7. Madhya Pradesh (24 August)[22]
8. Delhi (24 August)[23]
9. Nagaland (26 August)[24]
10.Maharashtra (29 August)[25]
11. Haryana (29 August)[26]
12.Telangana (30 August)[27]
13.Sikkim (30 August)[28]
14.Mizoram (30 August)[29]
15.Goa (31 August)[30]
16.Odisha (1 September)[31]
17.Puducherry (2 September)[32]
18.Rajasthan (2 September)[33]
19.Andhra Pradesh (8 September)[34]
20.Arunachal Pradesh (8 September)[35]
21.Meghalaya (9 September)[36]

Salient features of Goods and Service Tax, bill [37][edit]

The salient features about this legislation were first time discussed in its first discussion paper in
year 2009. We will reproduce the features discussed here again to understand this act very well.
(i) The GST shall have two components: one levied by the Center (hereinafter referred to as Central
GST), and the other levied by the States (hereinafter referred to as State GST). Rates for Central
GST and State GST would be prescribed appropriately, reflecting revenue considerations and
acceptability. This dual GST model would be implemented through multiple statutes (one for CGST
and SGST statute for every State).
However, the basic features of law such as chargeability, definition of taxable event and taxable
person, measure of levy including valuation provisions, basis of classification etc. would be uniform
across these statutes as far as practicable.
(ii) The Central GST and the State GST would be applicable to all transactions of goods and
services made for a consideration except the exempted goods and services, goods which are
outside the purview of GST and the transactions which are below the prescribed threshold limits.
(iii) The Central GST and State GST are to be paid to the accounts of the Centre and the States
separately. It would have to be ensured that account-heads for all services and goods would have
indication whether it relates to Central GST or State GST (with identification of the State to whom the
tax is to be credited).
(iv) Since the Central GST and State GST are to be treated separately, taxes paid against the
Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be
utilized only against the payment of Central GST.
(v) Cross utilization of ITC between the Central GST and the State GST would not be allowed except
in the case of inter-State supply of goods and services under the IGST model which is explained
later.
(vi) Ideally, the problem related to credit accumulation on account of refund of GST should be
avoided by both the Centre and the States except in the cases such as exports, purchase of capital
goods, input tax at higher rate than output tax etc. where, again refund/adjustment should be
completed in a time bound manner.
(vii) To the extent feasible, uniform procedure for collection of both Central GST and State GST
would be prescribed in the respective legislation for Central GST and State GST.

(viii) The administration of the Central GST to the Centre and for State GST to the States would be
given. This would imply that the Center and the States would have concurrent jurisdiction for the
entire value chain and for all taxpayers on the basis of thresholds for goods and services prescribed
for the States and the Centre.
(ix) The present threshold prescribed in different State VAT Acts below which VAT is not applicable
varies from State to State. A uniform State GST threshold across States is desirable and, therefore, it
is considered that a threshold of gross annual turnover of Rs.10 lakh both for goods and services for
all the States and Union Territories may be adopted with adequate compensation for the States
(particularly, the States in North-Eastern Region and Special Category States) where lower threshold
had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale
industries and to avoid dual control, the States also considered that the threshold for Central GST for
goods may be kept at Rs.1.5 crore and the threshold for Central GST for services may also be
appropriately high. It may be mentioned that even now there is a separate threshold of services (Rs.
10 lakh) and goods (Rs. 1.5 crore) in the Service Tax and CENVAT.
(x) The States are also of the view that Composition/Compounding Scheme for the purpose of GST
should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross
annual turnover. In particular, there would be a compounding cut-off at Rs. 50 lakh of gross annual
turn over and a floor rate of 0.5% across the States. The scheme would also allow option for GST
registration for dealers with turnover below the compounding cut-off.
(xi) The taxpayer would need to submit periodical returns, in common format as far as possible, to
both the Central GST authority and to the concerned State GST authorities.
(xii) Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of
13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based
system for Income tax, facilitating data exchange and taxpayer compliance.
(xiii) Keeping in mind the need of tax payers convenience, functions such as assessment,
enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with
information sharing between the Centre and the States.

Model Draft GST Law [edit]

[42]

The draft GST law proposed in the parliament indicates all the entities that lie under the GST Bill.
The GST bill comes directly under the Central government and there is the certain procedure that is
meant to provide the feasible condition for the taxpayer. The power to grant exemption from the tax

between the states and the central government is well explained in the draft bill. The Central Goods
and Services tax grants power to the officers to discharge their duties under the GST Act.
On September 8, Indian President Pranab Mukherjee has signed the bill and it becomes a law. [43]

Tax-Rate under the proposed GST[edit]

The tax-rate under the proposed GST would fall, but the number of assesses would increase by 5-6
times.[44] Although rates would come down, tax collection would go up due to increased tax elasticity.
The government is working on a special IT platform for smooth implementation of the proposed
Goods and Services Tax (GST). The IT special vehicle (SPV) christened as GST N (Network) will be
owned by three stakeholdersthe centre, the states and the technology partnerNSDL, then Central
Board of Excise and Customs (CBEC) Chairman S Dutt Majumdar said while addressing a "National
Conference on GST". On the possibility of rolling out GST, he said, "There was no need for alarm if
GST was not rolled out in April 1, 2012.[41]

Renewed GST concerns[edit]

With heterogeneous State laws on VAT, the debate on the necessity for a GST has been reignited [45]
[citation needed]

. The best GST systems across the world use a single GST, while India has opted for a dual-

GST model. Critics claim that CGST, SGST and IGST are nothing but new names for Central
Excise/Service Tax, VAT and CST, and hence GST brings nothing new to the table. The concept of
value-added has never been utilized in the levy of service, as the Delhi High Court is attempting to
prove in the case of Home Solution Retail, while under Central Excise the focus is on defining and
refining the definition of manufacture, instead of focusing on value additions. The Revenue can be
very stubborn when it comes to refunds, as the Maharashtra Government proves, and software
entities that applied for refunds on excess service tax paid on inputs discovered [citation needed].[41]
The all-new Cenvat Credit Rules, 2014 do little to clarify eligibility for input credits, by using general
terms such as "any goods which have no relationship whatsoever with the manufacture of a final
product" and "services used primarily for personal use or consumption of any employee" [citation needed].[46]
GST Bill in India One Step Towards Simplifying the Muddled Up Tax System
The proposed Goods and Services Tax (GST) is said to replace all indirect taxes levied on goods and services
by the Government, both Central and States, once it is implemented. The GST will consolidate all State
economies. It will be one of the biggest taxation reforms to take place in India once the Bill gets the official
green signal. The basic idea is to create a single, cooperative and undivided Indian market to make the
economy stronger and powerful. The GST will make a significant breakthrough paving way for an allinclusive indirect tax reform in the country.
Read : Impact of GST on Various Sectors and Common Man

In the year 2000, for the first time the idea of initiating the GST was made by the then BJP Government
under the leadership of Atal Behari Vajpayee. An empowered committee was also formed for that, headed by
Asim Dasgupta (the then Finance Minister of the West Bengal Government). The committee was formed to
design the model of the GST and at the same time inspect the preparation of the IT department for its
rollout. In 2011, the previous United Progressive Alliance (UPA) Government also introduced a Constitution
Amendment Bill to facilitate the introduction of the GST in the Lok Sabha but it was rejected by many
States.

What is GST?

The GST is basically an indirect tax that brings most of the taxes imposed on most goods and services, on
manufacture, sale and consumption of goods and services, under a single domain at the national level. In
the present system, taxes are levied separately on goods and services. The GST is a consolidated tax based
on a uniform rate of tax fixed for both goods and services and it is payable at the final point of consumption.
At each stage of sale or purchase in the supply chain, this tax is collected on value-added goods and
services, through a tax credit mechanism.

The proposed model of GST and the rate

A dual GST system is planned to be implemented in India as proposed by the Empowered Committee under
which the GST will be divided into two parts:

State Goods and Services Tax (SGST)

Central Goods and Services Tax (CGST)
Both SGST and CGST will be levied on the taxable value of a transaction. All goods and services, leaving
aside a few, will be brought into the GST and there will be no difference between goods and services. The
GST system will combine Central excise duty, additional excise duty, services tax, State VAT entertainment
tax etc. under one banner.
The GST rate is expected to be around 14-16 per cent. After the combined GST rate is fixed, the States and
the Centre will decide on the SGST and CGST rates. At present, 10 per cent is levied on services and the
indirect taxes on most goods is around 20 per cent.
Must Read: GST Bill Nears Consensus

Advantages of GST Bill

Introduction of a GST is very much essential in the emerging environment of the Indian economy.

There is no doubt that in production and distribution of goods, services are increasingly used or
consumed and vice versa. Separate taxes for goods and services, which is the present taxation system,
requires division of transaction values into value of goods and services for taxation, leading to greater
complications, administration, including compliances costs. In the GST system, when all the taxes are
integrated, it would make possible the taxation burden to be split equitably between manufacturing and
services.
GST will be levied only at the final destination of consumption based on VAT principle and not at
various points (from manufacturing to retail outlets). This will help in removing economic distortions and
bring about development of a common national market.

It will also help to build a transparent and corruption-free tax administration. Presently, a tax is
levied on when a finished product moves out from a factory, which is paid by the manufacturer, and it is
again levied at the retail outlet when sold.

Benefits of GST Bill

For the Centre and the States
According to experts, by implementing the GST, India will gain $15 billion a year. This is because, it will
promote more exports, create more employment opportunities and boost growth. It will divide the burden of
tax between manufacturing and services.
For individuals and companies
In the GST system, taxes for both Centre and State will be collected at the point of sale. Both will be
charged on the manufacturing cost. Individuals will be benefited by this as prices are likely to come down
and lower prices mean more consumption, and more consumption means more production, thereby helping
in the growth of the companies.
Items not under GST
Alcohol, tobacco, petroleum products

Biggest Sector-wise Gainers and Losers under GST

While most manufactured goods will see prices drop which in turn will see increase in demand, some
services are likely to see an increase in costs, where consumers will end up spending more. Here is a sectorwise snapshot of the biggest gainers and losers.
Gainers:
Logistics
With Make in India gaining ground along with rapidly increasing e-commerce, companies involved in
logistics are likely to be gainers. Companies like Container Corporation of India, Interglobe Aviation,
Allcargo, Aegis logistics, Adani SEZ, Gujarat Pipavav will receive a boost.
Automobiles
Small car manufacturers like Maruti, Hyundai and Tata Motors and 2-wheeler companies like Hero Motors,
Eicher, Bajaj Auto will be big beneficiaries as costs are likely to drop significantly.
FMCG
Large FMCG companies like Hindustan Levers, P&G, Godrej and ITC are likely to benefit a lot from lower
taxes and logistics cost.
Consumer Durables

Most companies in this sector will benefit from lower taxes and logistic costs. White goods manufacturers,
electrical appliances etc are mostly expected to benefit.
Cement
Being a major input to the infrastructure industry, most cement companies have been witnessing an upsurge
in demand. With GST, lower costs will see a further increase in demand and lowering of overall cost of
infrastructure in India.

Losers:
Luxury car manufacturers
Luxury cars are going to become costlier thereby adding to the pressure of the existing low sales.
Mobile phones
Mobile phone buyers will now have to pay more for their phones.
Restaurants
Eating out is now going to cost more hitting the salaried class the maximum.
Branded Jewelry
Branded jewelry will become more expensive hitting companies like Titan that are already suffering due to
high cost of gold imports.
Pharmaceutical
Most pharma companies are likely to see an increase in indirect taxes with consumers having to pay more
than existing prices.This is likely to see protests in coming days.
Utilities
With sale of electricity being kept out of GST, the cost to companies using coal-based power and renewable
energy are likely to see an increase in costs.
Oil and Gas
Aviation Turbine Fuel, high speed diesel, crude oil and other petroleum products excluded from GST will see
a rise in costs, if dual indirect taxes are not removed.
Challenges to smooth transition to GST regime
In 2013, a new Goods and Services Tax Network (GSTN) was established and entrusted with the
responsibility to create and maintain the massive IT infrastructure required to maintain the GST backbone.

With 29 states and 7 Union Territories, it will be no easy task to transition existing businesses to a single
seamless integrated platform that can efficiently manage the registration process, return filing and
monitoring, and settlements to tax payers.
The problem is the existing gap between IT infrastructures of various states that operate on separate
platforms and vary in technical complexity. Besides IT infrastructure, personnel across states will have to be
trained on the new platform and that will be a challenge, given the disparity in quality of IT personnel and
the limited time to upgrade their skills before GST goes live.
With the government aiming to implement GST from 01 April 2017, GSTN has a major challenge at hand.