India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism.

The dual GST model refers to a concept where both the Centre and states simultaneously levy taxes on the supply of goods and services while the administration is run separately. It is dissimilar to the Single National GST model, where the taxes are levied only by the Centre involving sharing such revenue with the provinces/states. It is adopted in countries such as Australia. It is also different from the Single State GST model, where states have exclusive rights to levy and collect taxes, such as in the USA.

This article gives out complete details about the dual model of GST taxation widely adopted by countries such as Canada, Brazil, and India.

Meaning of dual GST model in India

The dual GST model or the dual GST structure means levying tax with two different taxation components. In India, both the Central Goods and Service Tax (or CGST) and the State Goods and Service Tax (or SGST) are the components levied on a single transaction within a state due to its federal nature. 

In other words, under the dual GST structure, both the central and state governments can charge and collect taxes through the appropriate legislation.

Also, both the governments are assigned with separate responsibilities and administration, as given under the division of powers statute of the Indian Constitution. A dual GST structure is formulated to align with the Indian Constitutional requirements of fiscal federalism.

The dual GST model can be either concurrent or non-concurrent. In the concurrent dual GST model, the taxes are levied by both the Centre and states simultaneously but independently. It is based on the place of supply of goods and services. In contrast, the non-concurrent dual GST model requires the tax on goods to be charged and collected by states while the tax on services by the Centre. 

The former required an amendment to the Indian Constitution, whereas the latter would not have involved one. The government’s primary intention to adopt the concurrent model was to reduce the cascading effect of taxes in India.

Notable features of dual GST model 

• GST has two components – one levied by the Centre (called the Central GST) and the other imposed by states (called the State GST).
• Central GST and the state GST would apply to all supplies of goods and services.
• The amounts collected as the Central GST and State GST must be individually deposited to the Centre and the state’s accounts.
• Central GST and state GST must be treated independently. Further, the taxes paid against the Central GST towards the intrastate transactions shall be allowed as Input Tax Credit (ITC) against the Integrated GST charged on the interstate transactions.
• The Constitution does not permit cross utilisation of ITC between the Central GST and the state GST, except where there is an inter-state supply. 
• Any accumulation of ITC due to GST refund has to be avoided by both the Centre and states, except exports, buying of capital goods, inverted tax structure, etc.
• The legislation for the CGST and SGST shall prescribe a uniform procedure for collecting both these tax components, respectively.
• Both upper ceiling and floor tax rates concerning the annual aggregate turnover must be fixed for composition or compounding schemes under GST.
• The taxpayer must submit returns periodically, in a common format, to both the Central and the concerned state GST authorities.
• Every taxpayer is allotted a 15 digit PAN-based identification number under GST, popularly known as the GSTIN.

Benefits of dual GST model

The following are the advantages of adopting a dual GST model-

• The total number of taxes levied by the Centre and state governments reduces.
• The effective tax rate for different goods gets reduced.
• This model helps in eliminating the cascading effect of taxes.
• The model proves to reduce the taxpayer’s transaction costs by way of simplified tax compliance.
• Increase in the tax collections due to broadening the tax base and compliance improvement.

Impact and implications due to the dual GST model

GST allows efficiencies to improve in the economic system and therefore lowers the cost of supply of goods and services. Due to the Indian background, there had been an expectation that the aggregate impact of the dual GST will be lower than multiple taxes that got subsumed with GST. 

Subsequently, the GST implementation has started to reduce the prices of goods and services. Therefore, this benefit must be passed on to the buyer and the ultimate customer. 

Under GST, there can be a possibility for disputes among states or between states and the central government. In such cases, the responsibility of resolving such disputes is put before the GST Council. The Council establishes ways to resolve arguments relating to GST.

To conclude, the dual GST model rationalises the way state and central governments can administer taxes. The taxpayers benefit from GST rates that are easier to follow and involve a simpler GST return filing process.

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