A Presentation by

Mr. Avinash Jain

GOODS AND SERVICES TAX (GST) IN INDIA

Goods & Services Tax

BY FAR THE MOST IMPORTANT

TAX REFORM IN

INDIAN HISTORY

Indian EconomyECONOMY: World is presently facing recession-II but Indian economy is still growing steadily against all odds.

DIRECT TAX: Policy makers are also trying their best to revamp the direct tax structure in India. New direct tax code (Income Tax Act, 1961 & Wealth Tax Act, 1957 would be scrapped) has been drafted and it may be applicable soon.

Indian Economy (Cont.)

INDIRECT TAX: Policy makers are also trying their best to scrap several obsolete indirect tax laws to bring on a single indirect tax as soon as possible. Indian public is aspiring for a composite single tax instead of multiple taxes which are currently applicable.

Problem in current indirect tax structure

CENVAT has yet not been extended to include chain of value addition in the distributive trade below the stage of production.

Credit in respect of VAT and CENVAT is still not available against each other.

Problem in current indirect tax structure (Cont.)

CENVAT has also not included several central taxes, such as

additional excise duties, additional customs duty, surcharges etc. in

the overall framework of CENVAT.

Several State taxes (e.g. luxury tax, entertainment tax, etc.) have

still not been subsumed under VAT and hence credit chain is broken

in this respect.

Due to above reasons there is burden of “tax on tax” in the existing

system of indirect tax laws of India.

GST – Answer to all problems

With the introduction of GST, 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, eliminating the burden of all cascading effects including the burden of CENVAT and service tax.

What is GST?

‘G’ – Goods‘S’ – Services‘T’ – Tax

“Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and service at a national level.GST is a tax on goods and services with value addition at each stage having comprehensive and continuous chain of set-of benefits from the producer’s/ service provider’s point up to the retailer’s level where only the final consumer should bear the tax.”

Goods & Services Tax (GST)

A Common Tax on

Goods Services

Need for GSTIntroduction of a GST to replace the existing multiple tax structures of Centre and State taxes is not only desirable but imperative in the emerging economic environment. Increasingly, services are used or consumed in production and distribution of goods and vice versa. Separate taxation of goods and services often requires splitting of transaction values into value of goods and services for taxation, which leads to greater complexities, administration and compliances costs. Integration of various taxes into a GST system would make it possible to give full credit for inputs taxes collected. GST, being a destination-based consumption tax based on VAT principle, would also greatly help in removing economic distortions and will help in development of a common national market.

Features of GST

GST shall have two components:-

oCentral GST - Levied by the Centre; andoState GST- Levied by the States.

Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration.

Features of GST (contd.)

Periodical returns to be submitted to both Central GST authority and to the concerned State GST authorities.

Uniform procedure for collection of Tax would be prescribed in the respective legislation for Central GST and State GST.

Justification of GST

Despite the success of VAT, there are still certain shortcomings in the structure of VAT, both at the Centre and at the State level.A. Justification at the Central Level

i. At present excise duty paid on the raw material consumed is being allowed as input credit only. For other taxes and duties paid for post-manufacturing expenses, there is no mechanism for input credit under the Central Excise Duty Act.

Contd….

ii. Credit for service tax paid is being allowed manufacturer/ service provider to a limited extent. In order to give the credit of service tax paid in respect of services consumed, it is necessary that there should be a comprehensive system under which both the goods and services are covered.

iii. At present, the service tax is levied on restricted items only. Many other large number of services could not be taxed. It is to reduce the effect of cascading of taxes, which means levying tax on taxes.

Contd…

B. Justification at the State Leveli. A major defect under the State VAT is that the State is

charging VAT on the excise duty paid to the Central Government, which goes against the principle of not levying tax on taxes.

ii. In the present State level VAT scheme, Cenvat allowed on the goods remains included in the value of goods to be taxed which is a cascading effect on account of Cenvat element.

iii. Many of the States are still continuing with various types of indirect taxes, such as luxury tax, entertainment tax, etc.

iv. As tax is being levied on inter-state transfer of goods, there is no provision for taking input credit on CST leading to additional burden on the dealers.

GST is a tax on goods and services with comprehensive and continuous chain of setoff benefits from the Producer’s point and Service provider’s point up to the retailer level.

GST is expected be levied only at the destination point, and not at various points (from manufacturing to retail outlets). It is essentially a tax only on value addition at each stage and a supplier at each stage is permitted to setoff through a tax credit mechanism which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax.

Under GST structure, all different stages of production and distribution can be interpreted as a mere tax pass through and the tax essentially sticks on final consumption within the taxing jurisdiction.

Currently, a manufacturer needs to pay tax when a finished product moves out from the factory, and it is again taxed at the retail outlet when sold. The taxes are levied at the multiple stages such as CENVAT, Central sales tax, State Sales Tax, Octroi, etc. will be replaced by GST to be introduced at Central and State level.

Continued…….

Concept of GST

All goods and services, barring a few exceptions, will be brought into the GST base. There will be no distinction between goods and services.

Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.

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.

The existing CST will be discontinued. Instead, a new statute known as IGST will come into place on the inter-state transfer of the Goods and Services.

By removing the cascading effect of taxes (CST, additional customs duty, surcharges, luxury Tax, Entertainment Tax, etc. ),CGST & SGST will be charged on same price .

Concept of GST

Existing Tax structure in India

Tax Structure

Direct Tax

Income Tax Wealth Tax

Indirect Tax

Central Tax

Excise Service Tax Custome

State Tax

VATEntry Tax, luxury tax,

Lottery Tax, etc.

Tax Structure

Direct Tax

Income Tax Wealth Tax

Indirect Tax = GST (Except

customs)

Intra- state

CGST (Central) SGST (State)

Inter State

IGST (Central)

Proposed Tax Structure in India

•Central Excise•Additional duties of Custom (CVD)•Service Tax•Surcharges and all cessesCGST

•VAT/sales tax•Entertainment Tax•Luxury Tax•Lottery Tax•Entry Tax•Purchase Tax•Stamp Duty•Goods and passenger Tax•Tax on vehicle•Electricity, banking, Real state

SGST

• CSTIGSTSubsuming of Existing Taxes

Taxes that may or may not be subsumed

There are few other indirect taxes that may or may not be subsumed under the GST regime as there is no consensus among States and Centre & States – Purchase tax Stamp Duty Vehicle Tax Electricity Duty Other Entry taxes and Octroi

SGST and CGST for intrastate transaction : In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.

IGST for Interstate transaction: ‘IGST Model’ will be in place for taxation of inter State transaction of Goods and Services. The scope of IGST Model is that center would levy IGST which would be CGST plus SGST on all inter State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services.

The GST paid on the purchase of goods and services, to be paid on the supply of goods and services.

There should be no distinction between raw materials and capital goods in allowing input tax credit. The tax base should comprehensively extend over all goods and services up to final consumption point on value addition.

Assessable value for all the taxes will be same.

Model of GST

Goods+

Services

1. Manufactur

er

2. Wholesaler

3.Retailer4.Consumer

5.Government and Banks

Stakeholder in Business Chain

Manufacturer

• Input Credit of Goods+ services• After taking set off of Input credit, pay the Output Liability on value addition

Wholesaler

• Input Credit of Goods+ services from manufacturer• After taking set off of Input credit, pay the Output Liability on value addition

Retailer

• Input Credit of Goods+ services from wholesaler• After taking set off of Input credit, pay the Output Liability on value addition

Consumer • Ultimate Output Liability recovered from consumer

GST Set off Chain

Since the Central GST and State GST are to be treated separately, in general, 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. The same principle will be applicable for the State GST.

Cross utilization of ITC between the Central GST and the State GST would, in general, be allowed.

ADC paid on Import of goods and service would fall under the IGST and this duty would be allowed for setoff of SGST and CGST.

Set-off methodology

IGST InputIGST

Output

CGST Output

CGST InputIGST

Output

CGST Output

SGST InputIGST

Output

CGST Output

Set off Heads

The illustration shown below indicates, in terms of a hypothetical example with a manufacturer, one wholesaler and one retailer, how GST will work.

Manufacturer : Let us suppose that CGST rate is 10% and SGST rate is 5% , with the manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods CGST paid @10%) and services used in the manufacturing process. The manufacturer will then pay net CGST of Rs. 3 after setting-off Rs. 10 as CGST paid on his inputs (i.e. Input Tax Credit) from gross CGST of Rs. 13 and Rs, 6.5 as SGST.

Gross Value:130 on that CGST 13/- and SGST 6.5/-Input Credit: CGST 10-/ and SGST NIL/-Net Liability: Rs. 3 + 6.5 = 9.5/-

Wholesaler: The manufacturer sells the goods to the wholesaler. When the wholesaler sells the same goods after making value addition of (say), Rs. 20, he pays net CGST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13, from the gross CGST of Rs. 15 and net SGST of only Rs. 1, after setting-off of Input Tax Credit of Rs. 6.5, from the gross SGST of Rs. 7.5 to the manufacturer.

Gross Value:150 on that CGST 15/- and SGST 7.5/-Input Credit: CGST 13-/ and SGST 6.5/-Net Liability: Rs. 2 + 1 = 3/-

Continued…….

Functioning of GST

Retailer: Similarly, when a retailer sells the same goods after a value addition of (say) Rs. 10, he pays net CGST of only Re.1, after setting-off Rs.15 from his gross GST of Rs. 16 and net SGST of only Rs. 0.5, after setting-off of Input Tax Credit of Rs. 7.5, from the gross SGST of Rs. 8/- paid to wholesaler.

Gross Value:160 on that CGST 16/- and SGST 8/-Input Credit: CGST 15-/ and SGST 7.5/-Net Liability: Rs. 1 + 0.5 = 1.5/-

Total Liability: Thus, the manufacturer, wholesaler and retailer have to pay only Rs. 6 (= Rs. 3+Rs. 2+Rs. 1) as CGST Rs. 8 (= Rs. 6.5+Rs. 1+Rs. 0.5) as SGST and on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. This is shown in the table in next slide. The same illustration will hold in the case of final service provider as well.

Continued…….

Functioning of GST

Stage of 

Supply Chain

Purchase

Value Of

Input

Value Addition

Value at Which Supply Goods

and Services Made to

Next Stage

Rate of

SGST

Rate of

SGST

CGST on 

Output

CGST on 

Output

Input Tax 

Credit on

CGST

Input Tax 

Credit on

SGST

Net CGST=CGST on output-Input Tax

Credit

Net SGST=SGST

on output-Input Tax

Credit

Manufacturer 100 30 130 10% 5% 13 6.5 10 0 13–10 =

36.5-0= 6.5

Whole Seller 130 20 150 10% 5% 15 7.5 13 6.5 15–13 =

27.5-6.5=1

Retailer 150 10 160 10% 5% 16 8 15 7.5 16–15 =

18-7.5=0.5

CGST & SGST Tax Liability working

After introduction of GST, all the traders including manufacturer will be paying both the types of taxes i.e. CGST and SGST. The Central GST and the State GST would be levied simultaneously on every transaction of supply of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits. Further, both would be levied on the same price or value unlike State VAT which is levied on the value of the goods inclusive of CENVAT, i.e CGST & SGST will be charged on same price Supply of Goods: Suppose the rate of CGST is 10% and that of SGST is 10%. When a wholesale

dealer of steel in Uttar Pradesh supplies steel bars and rods to a construction company, which is also located within the same State for , say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price of the goods.

Supply of Services : Suppose, that the rate of CGST is 10% and that of SGST is 10%. When an advertising company located in Mumbai supplies advertising services, to a company manufacturing soap which is also located within the State of Maharashtra for, Rs. 100, then the ad company would charge CGST of Rs. 10 as well as SGST of Rs. 10 to the basic value of the service.

In both the cases, he would be required to deposit the CGST component into a Central Government account and the SGST portion into concerned State Government account. He need not actually pay duty in cash, as he would be entitled to set-off this liability against the CGST or SGST paid on his purchases (say, inputs). But for paying CGST he would be allowed to use only the credit of CGST & SGST paid on his purchases respectively. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit be used for payment of CGST.

Mechanism of Dual Taxation

With Constitutional Amendments, both CGST and SGST will be levied on import of goods and services into the country.

The incidence of tax will follow the destination principle(Place of supply rules). Tax revenue in case of SGST will accrue to the State where the imported goods and

services are consumed. Full and complete set-off will be available on the GST paid on import on goods and

services. Thus, import of goods will attract BCD and IGST. It may be noted that import of

services, as against service tax at present, in GST regime, will attract IGST. Basic Custom Duty will continue to there under GST system. However, the additional

custom duty in lieu of CVD /Excise and the Special Additional Duty (SAD) in lieu of sales tax/VAT will be subsumed in the import GST.

The import of services will be subject to Central GST and State GST on a reverse charge mechanism. In other words, the GST will be payable by the Importer on a self declaration basis.

GST on Import of Goods and services

It will cover all types of person carrying on business activities, i.e. manufacturer, job-worker, trader, importer, exporter, all types of service providers, etc.

If a company is having four branches in four different states, all the four branches will be considered as TP (Taxable person) under each jurisdiction of SGs.

A dealer must get registered under CGST as it will make him entitle to claim ITC of CGST thereby attracting buyers under B2B (Business to Business) transactions.

Importers have to register under both CGST and SGST as well.

Taxable Person

GST on export would be zero rated.

Similar benefits may be given to Special Economic Zones (in processing zones only).

No benefit to the sales from an SEZ to Domestic Tariff Area (DTA).

GST paid by Exporter on the procurement of goods and services will be refunded.

GST on Export of Goods and Services

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.

The exact design would be worked out in consultation with the Income-Tax Department.

Registration under GST

The taxpayer would need to submit periodical returns to both the Central GST authority and to the concerned State GST authorities.

ITC credit can also be verified on the basis of the returns filed and revenues reconciled against Challan data from banks.

Common standardized return for all taxes (with different account heads for CGST, SGST, IGST) can come into picture.

Common standardized Challan for all taxes (with different account heads for CGST, SGST, IGST) can come into picture.

Returns under GST

Existing Practice

Excise Duty-Manufacturing,

Sales Tax/VAT- Sale of Goods

Service Tax- Realization of Service

GST

Taxable event is “Supply “ of Goods & service

The location of the supplier and the recipient within the country is immaterial for the purpose of CGST.

SGST would be chargeable only when the supplier and the recipient are both located within the State. 

Inter state Supply of goods and services will attract IGST.

Taxable Event

The Task Force on GST said the computation of CGST and SGST liability should be based on the Invoice credit method. i.e., allow credit for tax paid on all intermediate goods and services on the basis of invoices issued by the supplier.

Invoice level detail is necessary for the reconciliation of tax deposits, and the end-to-end reconciliation of ITC. An effective IGST implementation may also require invoice-level details.

A number of states are capturing invoice details even in the existing VAT systems. It is proposed to follow a two-pronged approach with Dealer level granularity of returns in the first phase followed by invoice level in the next phase.

GST Invoice

The combined GST rate is being discussed by government. The rate is expected around 16 per cent. After the total GST rate is arrived at, the States and the Centre will decide on the CGST and SGST rates. Currently, services are taxed at 12 per cent and the combined charge indirect taxes on most goods are around 20 per cent.

Today the Rate of GST in some countries are Australia10%, France19.60%, Canada5%, Germany19%, Japan5%, Singapore7%, Sweden25%, New Zealand15% & Pakistan17%

Rate of Tax

Threshold Limits - Goods

Turnover of Goods Applicable Taxes

Below Rs. 10 Lacs. Neither State GST nor Central

GST

Between Rs. 10 Lacs and Rs. 150

Lacs

Only State GST

Above Rs. 150 Lacs Both State GST and Central GST

What will be out of GST? Levies on petroleum products Levies on alcoholic products Taxes on lottery and betting Basic customs duty and safeguard duties on import of

goods into India Entry taxes levied by municipalities or panchayats Entertainment and Luxury taxes Electricity duties/ taxes Stamp duties on immovable properties Taxes on vehicles

Alcohol, tobacco, petroleum products are likely to be out of the GST regime.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the existing practice. In case it has been made VA table by some States, there is no objection to that. Excise Duty, which is presently levied by the States may not also be affected.

Tax on Petroleum Products:  Petroleum and petroleum products have also been constitutionally brought under the GST. However, it has also been provided that petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council.

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST with ITC.

Taxation of Services: As indicated earlier, both the Centre and the States will have concurrent power to levy tax on goods and services. In the case of States, the principle for taxation of intra-State and inter46 State has already been formulated by the Working Group of Principal Secretaries /Secretaries of Finance / Taxation and Commissioners of Trade Taxes with senior representatives of Department of Revenue, Government of India. For inter-State transactions an innovative model of Integrated GST will be adopted by appropriately aligning and integrating CGST and IGST.

Exemption of Goods and Services

A Composition/Compounding Scheme will be an important feature of GST, to protect the interests of small traders and small scale industries. The 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 will be a compounding cut-off at Rs. 50 lakhs of the gross annual turnover and the floor rate of 0.5% across the States. The scheme would allow option for GST registration for dealers with turnover below the compounding cut-off.

Composition scheme

Based on the legal provisions and procedure for GST, the content of work-flow software such as ACES (Automated Central Excise & Service Tax) would require review.

On the IT front, there has been consensus that there will be a common portal providing three core services (registration, returns and payments).

GST and Information Technology (IT) Interface

Common GST Portal

(Reconciliation system)

Taxpayer

State 1PortalState 2 Portal

State N Portal

NSDLMCA CBDT

CBEC(Central Portal)

Banks and RBI

Information Flow and Associated Entities

Send Challan

Upload Challan Details

File Returns

CGST and IGST Returns

SGST and IGST Return

Under the CGST model proposed, with threshold of annual turnover of Rs.10 lakhs, the present Assessee base of Excise and Service Tax of about 10 lakhs will increase to about 50 lakhs as every manufacturer and Trader above the specified threshold will be liable to CGST.

Increased Assessee Base

The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST.

The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State,

The Centre will transfer to the importing State the credit of IGST used in payment of SGST,

The relevant information will also be submitted to the Central Agency which will act as a clearing house mechanism.

Tax reconciliation between Central and State Govt.

Advantages of IGST Mode

Maintenance of uninterrupted ITC chain on inter-State transactions.

No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer.

No refund claim in exporting State, as ITC is used up while paying the tax.

Self monitoring mode

Level of computerization is limited to inter-State dealers and Central and State Governments should be able to computerize their processes expeditiously.

As all inter-State dealers will be e-registered and correspondence with them will be by e-mail, the compliance level will improve substantially.

Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions into account.

Advantages of IGST Mode (Cont….)

Major flaw of this model is ,Local Dealers have to pay CGST in addition to SGST.

In Addition to this, CGST mainly represents the Excise/service tax and SGST mainly represents the VAT portion but, because of ‘No differentiation between Goods and Services’ service supply within the state would attract SGST as GST is levied at each stage in the supply chain and Assessee have to Pay CGST as well SGST.

The issue which still needs to be resolved are, the revenue sharing between States and Centre, and a framework for exemption, thresholds and composition.

Flaws of GST Model

Latest updates on GSTParliament panel might propose optional GST for states The panel, to consider its draft report on the Constitution (115th

Amendment) Bill on the GST, feel states should be given enough fiscal space if the success of Value Added Tax (VAT) is to be replicated.

To address concerns of the states on revenue loss, the panel might recommend an automatic compensation mechanism, wherein a fund is created under the proposed GST Council. It also wants a study to evaluate the impact of GST on the revenue of states. It could suggest a floor rate with a narrow band, decision by voting and not consensus in the GST Council, omitting the provision on setting up a Dispute Settlement Authority, subsuming entry tax in GST and giving powers to states to levy tax in the event of a natural calamity, among other things.

Contd..

Latest updates on GST The report of the standing committee could be adopted in its next

meeting and the finance ministry, after incorporating the panel’s views, would approach the cabinet to present the Bill in Parliament with the changes.

Emerging Issues What preparations are required at the level of CG and SG for

implementing GST? Whether the Government machinery is in place for such a mammoth

change? Whether the tax-payers are ready for such a change? What impact it can have on the revenue of the government? How can the burden of tax, in general, fall under the GST? In what respect, it will affect the manufacturers, traders and ultimate

consumers? How will GST benefit the small entrepreneurs and small traders? Which type of administrative work will be involved in complying

with the GST requirements?

Issues from Trader’s Perspective Dialogue with Trade & Industry and all other stake

holders

Industrial inputs, Capital goods to be at lower rate

List of exempted goods – specific/common across states

Stock transfers should be exempted monitors through system based controls

GST : Professional Opportunities Knowledge management Preparatory advisory Cost benefit analysis GST implementation Training / seminars / awareness Planning compliances Advance ruling representation Employment with corporates Client retainerships GST Audit

Issues from Industry’s Perspective All declaration forms (Form F, C) should be abolished Monitoring through system based controls Full set-off of Input tax credit to the assessee / entity, based on principle of

business cost and expenditure Immediate credit of stock transfers, without one-to-one co-relation. Set-off should be on entity / concern basis. Refunds, if any, should be automatic through system based controls.

Issues From Industry’s Perspective Multiple state jurisdictions.

Full set-off : a question mark

Building of IT backbone

Uniform legislation, forms, rules, rates, compliance

requirements.

Any change post implementation should be uniform by all

states not piecemeal.

Bar on increase in rates, imposition of new taxes by states

Issues Yet To Be Decided Constitutional amendment authorizing state to

collect and retain tax on services. Integration of certain Central & State taxes

(Various Cess, Electricity duty, Entertainment tax etc)

Stock transfers Road permits and check posts to be contd….

Issues Yet To Be Decided Taxation of inter-state services and their method of taxation

Difficulties in defining Place of supply, place of deliveryGroup Health InsuranceConsulting servicesHowever most of the B2B services not a problem

because of availability of creditDisputes even with regard to classification of goods Jurisdictional Issues with regard to registration and SCN /

Assessments

Favorable Impact on Industry Seamless credit to trade and industry throughout supply chain

will improve competitiveness Common Tax Base will eliminate tax cascading CST phase-out will reduce supply chain cost Economy in production scale & efficiency in distribution Simplified structure to reduce transaction cost

Conclusion The taxation of goods and services in India has, hitherto, been

characterized as a cascading and distortionary tax on production resulting in mis-allocation of resources and lower productivity and economic growth. It also inhibits voluntary compliance. It is well recognized that this problem can be effectively addressed by shifting the tax burden from production and trade to final consumption. A well designed destination-based value added tax on all goods and services is the most elegant method of eliminating distortions and taxing consumption. Under this structure, all different stages of production and distribution can be interpreted as a mere tax pass-through, and the tax essentially ‘sticks’ on final consumption within the taxing jurisdiction.

A ‘flawless’ GST in the context of the federal structure which would optimize efficiency, equity and effectiveness. The ‘flawless’ GST is designed as a consumption type destination VAT based on invoice-credit method.

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