As per the current laws, the levy of tax on inter-state sale/purchase is governed by the central government while the tax on sale within the state is the prerogative of the state government. However, this is applicable to the sale and purchase of goods. The services are taxed hundred per cent by the central government by the application of service tax. The organisations covered under the service tax at present, prefer to consolidate their tax liability at one central location. Even if the services are being delivered across multiple states, the service tax liability is amalgamated and paid from one location. However, the situation is going to change drastically with the GST coming in.
As we all know that GST is a destination based tax. So the tax on services would become applicable at the point of delivery. Services can be delivered at multiple locations across states simultaneously. For example, the law consulting firm may be providing the litigation services in the states of Haryana, Gujarat, Karnataka and Orissa, while its head office may be in Delhi. As per the current situation, the law consulting firm service provider combines its service tax liability at Delhi by taking inputs from the four locations and makes the tax liability payments at Delhi.
Under the GST regime, the law consulting service provider would have to register for payment of SGST in all the four states. Each of the 4 state governments will issue the SGST registration number to the service provider. The SGST calculation will have to be done separately for each state and payment made in 4 SGST accounts. The complexity in filing tax is going to increase under GST for the inter-state service provider.
Whether the service is provided on an inter-state basis or intra-state basis it is going to have a CGST component. The central government is going to have a reduced share in earnings from the services sector. The ratio of CGST and SGST is going to be decided by the GST council. This along with many other recommendations is going to be incorporated in the final GST bill for constitutional amendment.
While most of the services like e-commerce, telecom, insurance etc. will have similar repercussions and result, it remains to be seen if the IGST component or Inter-state taxation comes into play for the service sector. We have the goods being transported from one state to another and being liable for IGST when they cross the state borders. In the case of services they will be delivered to a location or not delivered. We cannot think of services being transported like goods and liable for IGST. The inter-state GST may be used as a carrier of funds between the centre and states. The platform may also work for the goods and service providers for input tax credit set off.
Special provisioning may be necessary for mobile telecom services as it is very difficult to define the location of usage for tax purposes. The user may be travelling and it is better to have specially designed rules to yield best results.