Dual GST model or dual GST structure is a simple tax with two different taxation components. Central Goods and Service Tax (CGST) and the State Goods and Service Tax (SGST) are the tax components that can be levied on a single transaction in India within a state on account of its federal nature.
Moreover, both governments have been assigned distinct responsibilities, as prescribed under the division of powers statute of the Constitution. Overall, a dual GST structure is designed to align with the Constitutional requirements of fiscal federalism.
a) The GST or Goods and Service Tax has two components – one levied by the central government (referred to as Central GST or CGST), and the other collected by the State governments (referred to as State GST or SGST)
b) Both CGST and SGST apply to all transactions pertaining to goods and services
c) Both CGST and SGST are paid to the respective accounts of the Central and the States governments individually
d) CSGT and SGST are treated individually, implying that the taxes paid against the CGST are allowed to be considered as Input Tax Credit (or ITC)
e) Cross utilization of the Input Tax Credit between CGST and SGST is not permitted, except for the inter-state supply of goods and services
f) Credit accumulation based on the GST refund is to be avoided by both the Central and State governments except in the case of exports, input tax at a higher rate than output tax, and purchase of capital goods, among others
g) There is a uniform procedure for collection of both CGST and SGST, as prescribed in their respective legislation
h) The composition or compounding scheme for GST has an upper ceiling and a floor tax rate concerning the gross annual turnover
i) As a taxpayer, you must submit periodic returns, in a standard format, to both the CGST and SGST authorities
j) Each taxpayer is allotted a 14-15 digit PAN-linked taxpayer identification number
The Dual GST structure is a transparent and straightforward tax model with a pre-defined set of CGST and SGST rates. The benefits of having a dual GST structure include –
a) Reduction in the total number of taxes levied by the Central and State governments
b) A decrease in the effective tax rate for different goods
c) Elimination of the existing cascading effect of taxes
d) Reduction of the taxpayer’s transaction costs through simplified tax compliance
e) Increased tax collections based on a broader tax base and improved compliance
The dual GST model has been a replacement for the overly complicated tax structure that existed before. So, the biggest beneficiaries of the new system have been the merchants and businesses who had to track, record, collect and file multitudes of taxes every month.
Another area of improvement, which was also a goal of the new GST Model, was the rate of final goods and services to the consumer. The Dual GST model aims to eliminate the cascading effect of indirect taxation on the final goods and services. Thus, if the benefits of lower taxes pass on to the consumers, they should experience lower prices.
Since dual GST means both State and Central Governments can impose and collect taxes, there is a possibility of dispute. The GST Council is expected to draw the guidelines for resolving such disputes.
Ultimately, the dual GST model should benefit the taxpayers and consumers the most. It is simpler to follow and provides easier tax filing methods, which small business owners can easily manage.