The concept of destination based tax on consumption
Exactly the concept of “Destination Based Tax” on “Consumption” is that the tax would accrue to the taxing authority which has jurisdiction over the place of consumption which is also termed as place of supply
For Example, If Mr A in Punjab produces the goods and sells the goods to B in Gujrat, then in such case the GST should be levied and collected and should accrue on the goods in the State of Gujrat and not in the State of Punjab. The revenue in the case of destination based taxation belongs to the place, where the goods are finally consumed and not to the State where the goods are produced.
Since the share of GST is distributed to the state where goods or services are finally consumed, it is called as destination based tax.
In the GST regime there are three categories of tax to be deposited:
- CGST – share of central government
- SGST – share of respective state government
- IGST – in case of interstate supply of goods and services tax is to be deposited in this category which would be distributed by central government to respective state
If supply of goods and services are intrastate then it will not matter as to whether origin based or destination based.
Indirect taxation is on consumption and consumer has consumed these things. So it is levied on consumption not origin.
GST, VAT or any indirect tax can be either origin/production based or destination/consumption based. It makes more sense to tax consumption rather than tax production. This is because the person is willfully consuming a product and needs to pay the tax. Unlike direct tax like income tax wherein just because you are earning income you get taxed. In income tax irrespective of whether you save or consume you are penalized. In consumption concept you get taxed only if you consume and the choice is yours (especially with respect to luxury and discretionary goods).
