GST Worldwide: An insight of Origin & Destination principle

GST Update 01.01.2016

GST DAILY DOSE OF UPDATION:-

GST Worldwide: An insight of Origin & Destination principle:-

GST can be based upon either origin principle or destination principle. The origin principle seeks to levy the tax on the “production”, i.e. the tax will be levied on the value addition done on the goods “produced” in the state. In this case, it is the producing state that reserves the right to tax. In this case, revenue goes to producing states.

On the other hand, destination principle is one which seeks to levy the tax on the “consumption”, i.e., the tax will be levied on the value addition done on the goods “consumed” in the state. Thus, in this case, the tax is levied by the state where the goods are to be consumed and the origin state (i.e. the state where the goods are produced) has no right to levy the tax. Thus, in this case, the revenue goes to the consuming states.

Out of the two principles, the consumption based or destination principle is the popular one. Even in India, it has been proposed to implement the consumption based GST. Due to this reason only, the manufacturing states like Tamil Nadu, Maharashtra, Gujarat and few others initially opposed GST as they had fears of loosing revenue by implementation of GST and it took lots of efforts by Centre to have a sign of affirmation from them. The consensus was achieved by promising 1% Additional levy during the course of inter-state trade of commerce for initial period of implementation of GST so that the revenue loss of manufacturing states is compensated. However, this 1% Additional levy has become one of the causes for non-passage of the GST bill in Parliament as according to the opposition party this 1% additional levy should not be implemented as this levy is non-cenvatable and will add to cascading effect.

Even the BJP Government is also agreeing to adhere to this demand of opposition party but it has to go to the state Governments for the same. This decision of imposition of 1% additional duty in proposed GST was taken by committee of Finance Minister. But Government is hopeful that the state government will agree to this as Centre has promised to State governments to compensate the shortfall in revenue for next 5 years.

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GST Update 01.01.2016

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