The GST (Goods and Services Tax) law, by UPA government was a monumental decision in the history of India. It aims to replace various indirect taxes with one simple tax (different tax brackets), creating a boundary-less nation and a unified national commodity and delivery market that will also lead to increase in the country’s year-on-year GDP.
Implementation of this law as one nation, one tax idea has brought about many positive changes by making compliance stricter, advisory based filing, tax planning via a centralized software and other employment opportunities for Company Secretaries in Practice.
What is GST?
- Goods and Services Tax (GST) is an indirect tax levied by the government in India on the sale of goods and services. Goods and services are divided into five tax slabs for collection of tax – 0%, 5%, 12%, 14%, 18% and 28%.
- Petroleum products and alcoholic drinks are taxed separately by the individual state governments. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. In addition, a cess of 22% or other rates on top of 28% GST applies on few items like aerated drinks, luxury cars, and tobacco products.
The tax came into effect from July 1, 2017, through the implementation of the One Hundred and First Amendment of the Constitution of India by the Modi government. The tax replaced existing multiple cascading taxes and simplified a slew of indirect taxes with a unified tax and is therefore expected to dramatically reshape the 2 trillion dollar economy of the nation in the future.
Origin of Goods and Services Tax
Moving towards Goods and Services Tax from VAT (Value Added Tax) in India was first proposed by the then Union Finance Minister P. Chidambaram in his Union Budget discourse for 2006-07. The mooted proposal was supported by his successors Manmohan Singh (also the Prime Minister at that time) and Pranab Mukherjee.
The EC (Empowered Committee of State Finance Ministers) which had detailed the outline of State VAT was asked to think of a structure for GST implementation which would be presented from the beginning of the FY April 2010. However, due to massive red tape and political lobbying by the opposition, the matter got delayed and the Finance Ministry placed the 122nd Constitution Amendment Bill in Lok Sabha on 19th December 2014 which was promulgated as the following GST bills in 2017 after lots of deliberation and review:
Central GST Bill, 2017
The Integrated GST Bill, 2017
Union Territory GST Bill, 2017
GST (Compensation to States) Bill, 2017
France was the first nation in the world that had implemented GST in 1954. Presently, there are approximately 160 countries that have GST/VAT in some form or the other in their tax structure outlined as a destination-based tax levied on the consumption of goods and services
Let’s take a look at the history of GST in India and how it became a reality.
- 1994: Amaresh Baghchi Report, 1994 suggests that the introduction of “Value Added Tax (VAT) ‘ will act as a root for implementation of Goods and Services Tax in India
- 2000: The Atal Bihari Vajpayee Government was the first to promote the idea of adopting GST. The Congress later picked it up in the UPA-1 and UPA-2 regime. In 2000, Ashim Dasgupta (Finance Min. of West Bengal) led EC (empowered committee) introduces the VAT System in 2005, which replaced old age taxation system in India. Representatives from the Centre and states were requested to examine various aspects of the GST proposal and create reports on the thresholds, exemptions, taxation of inter-state supplies, and taxation of services.
- 2004: A task force that was headed by Vijay L. Kelkar as an advisor to the finance ministry, who indicated that the existing VAT tax structure had many issues that would need to be mitigated by the GST system.
- February 2005: The-then finance minister, P. Chidambaram, said in the budget session for the financial year 2005-06 that the ‘medium-to-long’ term goal of the government was to implement a uniform GST structure across the nation, covering the whole country’s production-distribution chain as a seamless chain of events.
- February 2006: The finance minister set 1 April 2010 as the GST introduction date.
- November 2006: Parthasarthy Shome, the advisor to P. Chidambaram, mentioned that states will have to prepare and make reforms for the upcoming GST regime.
- February 2007: The 1 April 2010 deadline for GST implementation was retained in the union budget for 2007-08.
- February 2008: At the union budget session for 2008-09, the finance minister confirmed that considerable progress was being made in the preparation of the roadmap for GST. The targeted timeline for the implementation was confirmed to be 1 April 2010.
- July 2009: Pranab Mukherjee, the new finance minister of India, announced the basic skeleton of the GST system. The 1 April 2010 deadline was still being maintained.
- November 2009: The EC headed by Asim Dasgupta presented the FDP (First Discussion Paper) which outlined the proposed GST regime. The paper was expected to start a debate that would generate further inputs from stakeholders.