The current article would be focusing on the historical background of Goods and Services Tax and how it has evolved over the period in India. In almost all the budget speeches since the year 2006-07, there has been a reference to the implementation of GST. All the steps have been discussed herewith to showcase the process and preparation for the implementation of GST by the Government of India.
The man who is behind this concept of GST in India is Mr. Atal Bihari Vajpayee who was the Prime Minister of India from 1998-2004. In the year 2000, for the first time the idea of initiating the GST was made and an empowered committee was formed headed by Dr. Asim Dasgupta (the then Finance Minister of the West Bengal Government). It was given the task of designing the GST model and overseeing the IT back-end preparedness for its rollout.
In 2004, The Task Force, headed by Sh. Vijay Kelkar, on implementation of the Fiscal Responsibility and Budget Management Act, 2003 had pointed out that although the indirect tax policy in India has been steadily progressing in the direction of VAT principle since 1986, the existing system of taxation of goods and services still suffered from many problems. It recommended that a well designed destination-based value added tax on all goods and services is the most elegant method of eliminating distortions and to tax consumption. Under this structure, all different stages of production and distribution can be interpreted as a mere tax pass-through, and the tax essentially ‘sticks’ on final consumption within the taxing jurisdiction. Therefore, the Task Force recommended the need of a National GST.
On February 28, 2006, A proposal to introduce a national level Goods and Services Tax (GST) by April 1, 2010 was first mooted in the Budget Speech by the then Finance Minister Mr. Palaniappan Chidambaram. He quoted that there is a growing consensus that the country must move towards a national level GST that must be shared between the Centre and States. Since the proposal involved reform/ restructuring of not only indirect taxes levied by the Centre but also the States, the responsibility of preparing a Design and Road Map for the implementation of GST was assigned to the Empowered Committee of State Finance Ministers.
In February, 2007, In his Budget Speech Mr. P. Chidambaram requested the Empowered Committee of State Finance Ministers headed by Dr. Asim Dasgupta to work with Central Government to prepare the road map for introduction of GST from April 1, 2010 .
In January 2007, the first report on GST was released by Dr. Shome, Advisor to the Union Finance Minister. While releasing the report, Dr. Shome said, “Developing a common market is the crux of the issue here. GST should enable free trade within the country. Impediments to free trade within the country have to be removed, especially when we are signing a number of free trade agreements abroad. This is an important challenge before us.” He emphasized, “We have to think of a rate that is not too high and at the same time appropriate for meeting State expenditure”. Dr. Shome identified six major challenges that policy makers need to overcome for introduction of GST. These include issues relating to Constitutional provisions, tax assignments vis-à-vis revenue sharing, the overall level of rates, the type of rate structures, development of a common market, and successful operation of TINXSYS (Tax information exchange system).
On May 10, 2007, the Empowered Committee of State Finance Ministers (EC) in consultation with Central Government started working on GST Roadmap. In order to take the GST related work further, The EC constituted a Joint Working Group (JWG), with the Advisor to the Union Finance Minister and the Member-Secretary of Empowered Committee as co-convenors and the concerned Joint Secretaries of the Department of Revenue of Union Finance Ministry and all Finance Secretaries of the states as its members to examine various aspects of the GST and draw up reports specifically on exemptions and thresholds, taxation of services and taxation of inter-State supplies.
The Joint Working Group, after intensive internal discussions as well as interaction with experts and representatives of Chambers of Commerce and Industry, submitted its report to the Empowered Committee on November 19, 2007. The JWG of EC laid down various recommendations. This report was then discussed in detail in the meeting of Empowered Committee and on the basis of this discussion and the written observations of the states, certain modifications were made.
In November 2007, the 13th Finance Commission was constituted by the President of India. The 13th Finance Commission was also required to study the likely impact of the proposed implementation of Goods and Services Tax (GST) with effect from April 1, 2010, including its impact on foreign trade.
In April, 2008, the EC in a report titled “A Model and Roadmap for Goods and Services Tax (GST) in India” submitted its final version of the views containing broad recommendations about the structure and design of GST to the Government of India. In response to the report, the Department of Revenue made some suggestions to be incorporated in the design and structure of proposed GST based on inputs from GOI and States.
The comments of the Government of India were received on December 12, 2008 and were duly considered by the Empowered Committee. On November 10, 2009 based on inputs from GOI and States, The EC released its First Discussion Paper on Goods and Services Tax in India with the objective of generating a debate and obtaining inputs from all stakeholders in the public domain. A dual GST model for the country was proposed by the EC.
In Nov 2009, an Empowered Group for development of IT Systems required for Goods and Services Tax regime was set up under the chairmanship of Dr. Nandan Nilekani. In February, 2011 IT Strategy for GST was released.
The Task Force on GST formed by the Thirteenth Finance Commission (FC) gave its report on December 15, 2009. The Thirteenth Finance Commission also made a number of significant recommendations relating to GST.
The first attempt to introduce GST in the parliament was made on March 22, 2011 by the then Finance Minister Shri Pranab Mukherjee by introducing the Constitutional 115th Amendment Bill 2011 and the bill contained the amendments which were necessary to make the GST Law. The Bill was then referred to the Departmentally Related Standing Committee on Finance of Parliament (the Standing Committee), under the Chairmanship of Mr. Yashwant Sinha, for detailed examination and report with the stakeholders and States. The Committee submitted its Report with recommendation in August 2013 to both the Houses of Parliament.
The Finance Ministry set up the Tax Administration Reform Commission (TARC) on October 22, 2013. The mandate of the committee was to (i) prevent economic offenses, (ii) review existing mechanism of dispute resolution, (iii) devise methods to widen the tax base, (iv) strengthen inter agency information sharing and (v) propose methods to increase voluntary tax compliance.
At the EC meet on November 23, 2013, the States rejected the GOI’s proposal to include alcohol and petroleum in the GST and the power to notify declared goods. The States also argued for an independent mechanism to compensate the States for their loss of revenue. Constitutional 115th Amendment Bill, 2011 could not see the light of the day and lapsed in May 2014 with change of Government at the Centre.
Now, the new government under the leadership of Shri Arun Jaitely (Union Finance Minister), to promote its agenda for growth and development, ease of doing business and Make in India campaign, again started discussions with the states and finally introduced a fresh bill on constitutional amendment after incorporating the earlier development and suggestions made by the Standing Committee on Finance and the state Finance Ministers.
The Constitution (One Hundred & Twenty Second Amendment) Bill, 2014 as proposed under Bill No. 192 of 2014 containing 21 clauses was introduced on 19th December 2014 in the Lok Sabha and the Bill was passed by the House on 6th May 2015.Currently the bill is pending for approval in Rajya Sabha and the tentative roll out date for GST has shifted to 1st April, 2017.
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