Innovation of GST

In any welfare state, it is the prime responsibility of the government to fulfill the increasing developmental needs of the country and its people by way of public expenditure. France was the first country to implement the GST in 1954, since then an estimated 160 countries have adopted this tax system in some-from or another. Some of the countries with a GST include Canada, Vietnam, Australia, Singapore, United Kingdom, Monaco, Spain, Italy, Nigeria, Brazil, South Korea and India.

Most countries with a GST have a single unified GST system, which means that a single tax rate is applied throughout the country. Only a handful of countries, such as Canada and Brazil, have a dual GST structure. Compared to a unified GST economy where tax is collected by the federal government and the distributed to the states, in a dual system, the federal GST is applied in addition to the state sales tax. The taxes levy by state/ provinces are called Provincial State Tax (PST).

The GST and PST have been combined in some provinces into a single tax known as the Harmonized Sales Tax (HST). Prince Edward Island was the first to adopt the HST in 2013. Since then, several other provinces have followed including New Brunswick, Newfoundland and Labrador, Nova Scotia and Ontario.

Goods and services and tax (GST) inscription in Notepad on wooden block on white background

Introduced in 1997 in Canada HST is paid by purchaser at the point of sale. The vendor collects the tax proceeds by adding the HST rate to the cost of goods and services and then remits the collected tax to the Canada Revenue Agency (CRA), the tax division of the federal government. The CRA later allocates the provincial portion of the HST to the respective province’s government.

Formation of GST in India

The reform of India’s tax regime was started in 1986 by Vishwanath Pratap Singh, Finance Minister in Rajiv Gandhi’s government, with the introduction of the Modified Value Added Tax. Subsequently Prime Minister P V Narasimha Rao and his Finance Minister Manmohan Singh, initiated early discussions on a Value Added Tax at the state level. GST was proposed in 1999 during a meeting between the Prime Minister Atal Bihari Vajpayee and his economic advisory panel, which included three former RBI governors IG Patel, Bimal Jalan and C Rangarajan.

2000 

The state finance ministers formed an Empowered Committee to create a structure for GST based on their experience in designing State VAT. The committee was headed by Asim Dasgupta, the finance minister of West Bengal. Dasgupta chaired the committee till 2011.

2004

A task force headed by Vijay L. Kelkar the advisor to the finance ministry, indicated that the existing tax structure had many issues that would be mitigated by the GST system.

February 2005

The finance minister P. Chidambaram discussed GST in the budget session for the financial year 2005-06.

February 2006

The finance minister set 1st April 2010 as the GST introduction date.

November 2006   

Advisor of P. Chidambaram (Parthasarthy Shome) mentioned that states will have to prepare and make reforms for the upcoming GST regime.

February 2007

The 1st 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.

July 2009

Pranab Mukherjee the new finance minister of India, announced the basic  of the GST system.

November 2009

The EC that was headed by Asim Dasgupta put forth the First Discussion Paper describing the proposed GST regime.

February 2010

The government introduced the mission mode project that laid the foundation for GST. This Project with budgetary outlay of Rupees 1,133 crore, computerized commercial taxes in states.

March 2011

The government led by the Congress party puts forth the Constitution (115th Amendment) Bill for the introduction of GST. Following protest by the opposition party, the Bill was sent to a standing committee for a detailed examination.

June 2012

The standing committee starts discussion on bill. Opposition parties raise concerns over the 279B clause that offers additional powers to the Centre over the GST dispute authority.

February 2013

The finance minister during the budget session announces that the government will provide Rupees 9,000 crores as compensation to states.

August 2013

The report created by the standing committee is submitted to the parliament. The panel approves the regulation with few amendments to the provisions for the tax structure.

October 2013

The state of Gujurat opposes the Bill as it would have to bear a loss of Rupees 14,000 crores per annum, owing to the destination-based taxation rule.

May 2014

The constitution amendment bill lapses. This is the same year that Narendra Modi was voted into power at the Centre.

December 2014

India’s new finance minister Arun Jaitley submits the Constitution 122ns amendment bill, 2014 in the parliament.

February 2015

Jaitley in his budget speech indicated that the government is looking to implement the GST system by April 2016.

May 2015

The Lok Sabha passes the Constitution amendment bill. Jaitley also announced that petroleum would be kept out of the ambit of GST for the time being.

August 2015

The bill was not passed in Rajya Sabha.

June 2016

The ministry of finance releases the draft model law on GST to the public expecting suggestions and views. 

August 2016

The congress led opposition finally agrees to the Governments proposal on the four broad amendments to the Bill. The Bill was passed in Rajya Sabha.

September 2016

The Honorable President of India gives his consent for the Constitution Amendment Bill to become an Act.

2017

Four bills related to GST become Act: Central GST Bill, Integrated GST Bill, Union Territory Bill, GST (Compensation to States) Bill. The GST Council also finalized on the GST rates and GST rules. The Government declares that the GST bill will be applicable from 1 July 2017.

India being a developing economy, has been striving to fulfill the obligations of a welfare state with its limited resources with levy of taxes being the primary source of revenue. Prior to the introduction of GST in India, a number of indirect taxes were levied in India such as excise duty, customs duty, service tax, VAT/CST, entertainment tax etc.

Indirect taxes are regressive in nature because they are not based on the principle of ability to pay. All the consumers, including the economically challenged bear the brunt of indirect taxes equally. Under indirect taxes, the incidence of taxes is borne by the consumers who ultimately consume goods or services while the immediate liability to pay tax may fall upon another person such as a provider of service or manufacturer/ seller of goods.

Benefits of GST  

It is expected that with the introduction of GST in India, the cost of goods and services will go down, thus giving a boost to the country and making the product and services globally competitive. The significant benefits of GST are as follows:

  • Creation of unified national market: GST aims to make India a common market with common tax rates and procedures and remove the economic barriers thus paving the way for an integrated economy at the national level.
  • Mitigation of ill effects of cascading: By subsuming most of the central and state taxes into a single tax and by allowing a set off of prior stage taxes for the transactions across the entire value chain, it would mitigate the ill effects of cascading improve competitiveness and improve liquidity of the business.
  • Elimination of multiple taxes and double taxation: GST will subsume majority of existing indirect tax levies at both central and state level into one tax. This will make doing business easier and will also tackle the highly disputed issues relating to double taxation of a transaction of a transaction as both goods and services.
  • Boost to make in India initiative: GST will give a major boost to the Make in India initiative of the government of India by making goods and services produced in India competitive in the national as well as international market.
  • Buoyancy to the government revenue: GST is expected to bring buoyancy to the government revenue by widening the tax base and improving the taxpayer compliance.

GST has been defined under Article 366(12A) of the constitution of India to mean any tax on supply of goods, or services or both except taxes on supply of alcoholic liquor for human consumption. Article 246A grants power to Central and State government to make laws with respect to GST imposed by Center or such State. However, the Central government has the exclusive power to make laws with respect to GST in case of inter-state supply.

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