Explain the concept destination-based taxation? How the GST proposes to implement the destination-based taxation system and what are the implications of it?

Model Answer:
Destination based tax (consumption tax) are levied at places where goods and services are consumed rather than at places were they get manufactured or from where they are supplied. In destination-based taxation, exports are allowed with zero taxes whereas imports are taxed on par with the domestic production. Therefore, GST being a destination based consumption tax; has many positive as well as negative implications.
Positive Implications

  • The biggest advantage of GST is economic unification of India.It has potential to end the long-standing distortions arising out of the differential treatment of the manufacturing and service sectors.
  • The replacement of several taxes such as, excise, octroi, sales tax, CENVAT, Service tax, turnover tax etc. with a single GST, would eliminate double taxation. Thus, reducing prices and relieving consumers.
  • GST would make life easy because of easier compliance due to replacement of multiple taxes by a single tax regime and will facilitate with easier return filing, tax payment and refund process due to robust IT infrastructure.
  • Currently, central government levies service tax for more than 100 services and no sales tax / VAT are levied by the states on services. However, once GST is in place, the service providers would need to pay the SGST to the states.

Negative Implications

  • The supply rules for the services will be more complex as the place of supply cannot be determined in some cases like telecom services and supply of fuels through dedicated pipelines.
  • Any ambiguity in rules may result in endless disputes not only between taxpayers and the revenue authorities, but also between states that assert jurisdiction over the supply of goods and services.
Question for UPSC Mains:
Explain the concept destination-based taxation? How the GST proposes to implement the destination-based taxation system and what are the implications of it?

Published: February 6, 2016 | Modified:June 27, 2019

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