The GST, since its implementation in 2017, has raised quite a few questions and eyebrows. What is called a uniform system of taxation contains in itself several forms it’s own to run a quasi-federal nation such as India with a whole new composition scheme under GST.
While India does follow a more centralized form of government, it still upholds its value as a somewhat federal nation through customized state-based laws and rules. Of course, these laws and rules can be negated by the center if they go against a law already set by the Central Government. Nevertheless, India bestows a bit of autonomy to its states and the separation of Central GST and State GST is one way in which it does so.
To understand the difference between the two, we must first study each in isolation, finding out differences once we’re done defining each in its own rights.
Central Goods and Services Tax
Central GST is, like the name suggests, for the Central Government to collect. In the case of the intrastate sales, both CGST and SGST is collected, with each tax going to their respective ends.
Central GST is wholly collectible by the center and the state gets no part of it. The rate for CGST is decided by the center itself. The CGST is an amalgamation of taxes such as central excise duty and service tax.
State Goods and Services Tax
State GST is collectible by the state itself and the rates are set by the center on the recommendation of the GST Council, where every state’s finance minister is present to regulate and recommend GST tax rates for standard application.
The SGST is an amalgamation of taxes such as VAT, luxury tax and purchase tax.
The Need For Separation of The Two Taxes
Now that the two concepts are well understood, we must understand the need for the two taxes and why they are separated from each other.
The very first reason for the separation is the quasi-federal nature of the country. Due to the fact that India is not a fully centralised nation, states are left some autonomy to run their geographical land, because of this, they do need to collect some taxes to keep the state running and productive. If it weren’t for a state based tax, states would be entirely dependent on the center, ruining the federal aspect of the Indian subcontinent.
The collection of taxes in itself provides states with a certain amount of autonomy which allows them to run their states however they want, as long as it is lawful. The states can choose states they can do business with, with the center having little say in the transaction.
Secondly, having two separate taxes allows for a smoother flow of governance and economy. Oftentimes, it is seen that State Governments are formed by political parties that might have a political vendetta against the Central Government. If the system of taxation is centralised, a conflict between the state and center is bound to arise, creating political and economic problems. Having two separate forms of taxation helps avoid such conflicts and keep peace and economy intact in the country.
Thirdly, while Central and State GST exist, there also exists an Integrated GST which is imposed on interstate trade. The tax is uniform and the state and the center share the amount at a decided ratio. The Integrated GST is collected by the consumer state and not the manufacturing state. The presence of this form of GST, separating it from CGST and SGST helps in creating a more uniform tax system for traders to encourage interstate trade. Due to the presence of this tax, lesser paperwork and complications are needed, making sure that trade is promoted in order to help the economy of the country as a whole.
Fourthly, the separation of the CGST and the SGST is only created for a smoother sail in the system, making sure that states have a sense of independence in their economic dealings. With the GST, a lot of taxes removed and/or integrated, for the ease of taxpayers and for the ease of the government to see and figure if traders were evading taxes. All in all, the GST was implemented to promote entrepreneurial endeavors and trade, in order to help the Indian economy grow. Even when these two GSTs are separated from each other, their end goal is to promote India’s economy and help the business grow in the country.
As can be seen from the above analysis, there are crucial differences between the Central GST and the State GST. The differences, as can be deduced, are for specific reasons that are viable for maintaining the quasi-federal nature of the country. While the separation of the two taxes might seem like a violation of the “one nation, one tax” policy, it only exists to maintain harmony in the country and promote a more lucrative economic structure.