GST 2016

Center-State Financial Relations with GST

Center-State Fiscal Power:

Currently, fiscal powers between the Centre and the States are clearly demarcated in the Constitution

The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.)

States have the powers to levy tax on the sale of goods.

In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the originating States.

Since the States are not empowered to levy any tax on the sale or purchase of goods in the course of their importation into or exportation from India, the Centre levies and collects this tax as additional duties of customs, which is in addition to the Basic Customs Duty.

This additional duty of customs counterbalances excise duties, sales tax, State VAT and other taxes levied on the like domestic product.

Introduction of the GST would require amendments in the Constitution so as to concurrently empower the Centre and the States to levy and collect the GST.

Concurrent jurisdiction to the Centre and the States for the levy of GST would require an institutional mechanism that would ensure that decisions about the structure, design and operation of GST are taken jointly by the two.

For GST to be effective, such a mechanism also needs to have Constitutional force.

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