Goods and services tax (GST), a multi-stage consumption-based value added tax (VAT) on goods and services is heralded as one of the most noteworthy indirect tax reforms in India.

GST is said to be destination-based or consumption-based tax. Hence, the place of consumption will decide the State that will collect tax. The parody behind destination-based taxation is, the producing/selling state gets nothing while the consuming states receive complete share of revenue. The evils arising out of destination-based taxation in a developing economy with wide spread economic disparity like ours could be horrendous. Following are some of the issues:

• The destination-based taxation is a boon for less developed States who consume more than what they produce. The States would continue to remain underdeveloped as the incentive that drives development i.e. revenue, would come through consumption.
• The States currently grant various incentives like Subsidy, Duty Deferment, No-duty status for setting new units in backward areas.  As the consumption-based regime comes in force, the States are not likely to encourage such schemes and this would affect overall national growth.

Absence of nexus between economic development measures and corresponding revenue generation may discourage developed states like Maharashtra or Gujarat to participate in GST The selling States are likely to try to put restrictions on interstate sales to avoid flow of revenue outside own state.  This could hamper the progress of trade and overall growth of India. Under consumption-based regime the tax rate of the state of the consumer is to be applied on sales, this would affect the sellers as they would have to keep track of tax-rate changes across India. Things may get worse in case of Sales-in-transit, where state of consumption changes in the course of transport. In the case of intangible services it is difficult to determine the actual place of consumption of service, consumption-based tax  would result in unending  tug

The parody behind destination based taxation is, the producing/ selling state gets nothing while the consuming states receive complete share of revenue.

• The only ray of hope under the consumption-based regime subsists if- the consuming states flushed with revenue onset on a path of growth of infrastructure and attract businesses, thereby facilitating income redistribution rendering overall growth of the State. This would eradicate economic disparity in the long term.

In short the destination-based taxation would serve as a retracting force for growth and progress of India in short term and a source of huge litigation in times to come.