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.
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.
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.
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.
The finance minister P. Chidambaram discussed GST in the budget session for the financial year 2005-06.
The finance minister set 1st April 2010 as the GST introduction date.
Advisor of P. Chidambaram (Parthasarthy Shome) mentioned that states will have to prepare and make reforms for the upcoming GST regime.
The 1st April 2010 deadline for GST implementation was retained in the union budget for 2007-08.
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.
Pranab Mukherjee the new finance minister of India, announced the basic of the GST system.
The EC that was headed by Asim Dasgupta put forth the First Discussion Paper describing the proposed GST regime.
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.
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.
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.
The finance minister during the budget session announces that the government will provide Rupees 9,000 crores as compensation to states.
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.
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.
The constitution amendment bill lapses. This is the same year that Narendra Modi was voted into power at the Centre.
India’s new finance minister Arun Jaitley submits the Constitution 122ns amendment bill, 2014 in the parliament.
Jaitley in his budget speech indicated that the government is looking to implement the GST system by April 2016.
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.
The bill was not passed in Rajya Sabha.
The ministry of finance releases the draft model law on GST to the public expecting suggestions and views.
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.
The Honorable President of India gives his consent for the Constitution Amendment Bill to become an Act.
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:
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.