How can gst be beneficial if the tax on the goods go to the state where the product is consumed?
Answers
Answering your query, the destination based taxation will indeed bring in a more equitable distribution of tax revenue.
In case of origin based taxation, the tax revenue accrues to the originating state and the profit also gets accumulated in the originating state.
e.g.: If goods are sold from Maharashtra to AP, both the tax revenue and the profit is kept by Maharashtra. AP gets nothing.
In case of a destination based tax, the destination state gets the tax revenue. Whereas the producing state gets the profit on goods sold, increase in profits will help increase consumption in the state. Increase in consumption = More tax revenue.
e.g.: If goods are sold from Maharashtra to AP, Maharashtra gets the profits and AP keeps the tax revenue. Maharashtra with its profits will consume more goods and AP will earn the GST revenue on these goods. Both states end up happy.
Also another benefit of destination based taxation is a better flow of credit.
Under the origin based taxation, the tax revenue accrues to the originating state and hence, the destination state is unable to allow a set-off of taxes paid on interstate purchases.
Whereas in case of a destination based taxation, all the revenues flow to the destination state and hence, the destination state is in a position to provide a set-off to the purchasing dealer.
Unless the credit of taxes paid on interstate purchases is allowed, the interstate purchases and local purchases cannot be said on a same footing. The taxes paid on which set-off is not allowed forms a part of the cost of the product and this increases the final price of the product.