The Goods and Services Tax (GST) is a destination-based, multi-stage indirect tax applied on the supply of goods and services. Globally, countries adopt different models of GST depending on their political structure, fiscal autonomy, and administrative needs. Broadly, there are three models of GST – (1) Central GST (CGST) model, (2) State GST (SGST) model, and (3) Dual GST model. India, being a federal country, adopted the Dual GST model, balancing powers between the Centre and States. Each model differs in terms of tax collection, administration, and revenue-sharing, but all aim at creating a transparent, efficient, and unified tax structure while eliminating cascading effects.
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Central GST (CGST) Model
In the Central GST model, only the central government levies and collects GST on all goods and services across the country. This creates a uniform taxation system with no role for state-level taxation. Revenue collected is distributed by the Centre, and states do not directly impose GST. This model is simple and administratively efficient, as it avoids duplication of compliance requirements. However, it reduces fiscal autonomy for states, making them dependent on central revenue-sharing. Such a model works best in countries with a unitary system of governance, where the Centre controls taxation, like in New Zealand and Singapore.
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State GST (SGST) Model
In the State GST model, states levy and collect GST independently on goods and services within their jurisdiction. The central government has no role in the imposition or collection of tax. Each state sets its GST rate, which may differ from other states. This system provides states with greater fiscal autonomy, allowing them to address local needs. However, it creates barriers to inter-state trade, as businesses face multiple tax structures. The model can lead to price distortions and compliance burdens for companies operating across different states. Such models are rare but can exist in countries with highly decentralized federal systems.
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Dual GST Model
The Dual GST model is a federal structure-based system, where both the Centre and States levy GST simultaneously on a common tax base. India follows this model to ensure balanced power-sharing. Under this system, every supply of goods and services attracts two taxes: Central GST (CGST) collected by the Centre and State GST (SGST) collected by the respective state, for intra-state supplies. For inter-state supplies, Integrated GST (IGST) is levied and apportioned between the Centre and States. This model avoids double taxation, provides input tax credit across states, and ensures revenue for both levels of government, making it most suitable for large federal nations.