The history of indirect taxes in India dates back to the early part of the 20th century, when the British Raj imposed taxes on commodities such as salt, tea, and opium. These taxes were used to fund the British Raj’s administrative and military costs. The first comprehensive taxation system in India was introduced in 1860, when the Government of India Act was passed. This act provided for a unified tax system in India, and it included a variety of direct and indirect taxes. The most common indirect taxes included excise duty, stamp duty, and customs duty.
In the post-independence period, indirect taxes continued to play a major role in India’s fiscal policy. In 1959, the Indian government implemented the Goods and Services Tax (GST), which replaced the earlier indirect taxes. This new taxation system was designed to simplify the taxation process and to reduce the cost of doing business in India. In 1991, the Government of India adopted a new economic policy which focused on liberalizing the Indian economy. The early 1990s saw the beginning of economic reforms, as the nation embarked on a journey of liberalization, privatization, and globalization. This led to the subsuming of various taxes and the implementation of a Goods and Services Tax (GST). The primary intention behind introducing a new taxation system was to eliminate multiple taxes and facilitate the free flow of goods and services across the country.
From April 1, 1991, the then government initiated a major step towards economic reforms by reducing customs duties, submitting corporate taxes and eliminating quantitative restrictions on imports and exports. This created a more coherent and efficient tax structure that helped reduce compliance and collection costs. The government also began recognizing the need for a goods and services tax and initiated a series of experiments with state value-added and service taxes. These experiments gave the central government an idea of the financial and administrative challenges that lay ahead.
By 2000, the concept of a Goods and Services Tax had taken seed and the following year, the Finance Ministry in India created an Empowered Committee of State Finance Ministers (EC) to study the feasibility and design of GST. After extensive deliberations, the committee recommended the creation of a joint committee of the Central and the State Governments to oversee the execution of the GST reform.
In 2007, the government passed the Constitution Amendment Bill, enabling the Central Government to levy and collect GST jointly with State Governments. The next year, the EC set up a way for GST to be brought in by April 1, 2010. However, due to some technical and political issues, the GST regime was implemented only by July 1, 2017, as the GST Council was set up in August of 2016. The GST Council was formed as a constitutional body comprising the Union Finance, State Finance and State Representatives.
Finally, from 2017, India began the journey of the unified GST, which replaced the multiple taxes that were previously existing. The GST reform simplified the nation’s indirect taxation system and made it easier for businesses to operate smoothly. GST incorporates all stages of the production and service delivery chain, allowing businesses to claim input tax credit in the GST regime.
The new taxation regime resulted in a unified system of taxation across the nation, subsuming various Central and State taxes – the likes of Value Added Tax (VAT), Octroi, Excise Duty, Central Sales Tax (CST) etc. into one single GST. The Government of India was successful in through implementation of GST in the country. Since its implementation, it has not only simplified the tax structure, but also brought a substantial increase in the tax compliance rate. The collections through GST have not only risen steadily over the years, but also surpassed earlier estimates, adding significantly to the nation’s revenues. For instance, in 2017–18, the GST collections stood at Rs.10.05 lakh crore and represented 11.2 percent of the Gross Domestic Product (GDP).
Thus, since its implementation in 2017, GST has been successful in achieving its twin goals of simplifying the tax structure and increasing revenue collections. Apart from revenue collections, the success of GST regime of the Government of India also can be seen in the fact that there has been an increase in the number of taxpayers. In 2018–19, there were 85.77 lakh taxpayers registered under GST, an increase of 25.5 percent from the previous year. Furthermore, the rate structure used in GST is also quite effective, in that it caters to the needs of all the stakeholders of the economy. This includes the end consumers, businesses, small traders etc. It promotes higher economic efficiency and advanced transparency in the system in a very efficient manner. The efforts taken by Government of India are further legitimized through the fact that India has been declared to be a ‘gst–mature market’ by the International Monetary Fund (IMF).
That being said, the success of GST by Government of India can be re–iterated in manner of taxation structure and enhanced rate of compliance which has allowed the country to increase funds for developmental purposes. In conclusion, the success of Government of India in GST regime from 2017 to 2023 has been tremendous. It has not only simplified the taxation structure, but also increased the nation’s revenue collections, enhanced the rate of compliance and promoted economic efficiency throughout the economy. With the continuous reforms and efforts taken by Government of India, it is likely that the dream of a truly unified nationwide market that GST promised to deliver will be fulfilled in coming years.
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Disclaimer : “Neither this article nor the information contained herein shall in any way be construed as forming a contract or shall constitute professional advice required before acting upon any matter. CA Sharad Kumar Sharma has taken all due care in the preparation of this article for accuracy in its contents at the time of publication. However, no liability shall be accepted by him in the event of any direct, indirect or consequential damages arising out of or in any way connected with the use of this article or its contents. “
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