The discussion surrounding GST started early on in the 2000s under Prime Minister Shri Atal Bihari Vajpayee (1998-2002). The central idea even back then was to streamline the prevalent taxation structure and remove the glitches therein. Some of the very important recounts in the history of GST and GST bill can be listed as follows :
The Journey of GST
While GST was envisaged quite a while back in early 2000, it finally was implemented in July 2017. The journey of GST through the years has had many ups and downs and the following are the key events that led to its nationwide implementation in July 2017.
Committee Set to Design GST Model
In the year 2000, the first committee on GST was set up under the then finance minister of Bengal, Mr. Asim Dasgupta. The committee was set up with the objective of designing and establishing GST model, which goes well with the Indian Federal structure. The committee also had the task of designing an effective back end system so that implementation of GST can be carried out efficiently.
Comprehensive GST Model suggested by Kelkar
The phase between the year 2000 and 2005 witnessed implementation of VAT (Value Added Tax). Government was keen on introducing VAT at the state level, post its introduction on the central level. In the year 2003, implementation of VAT assumed importance overshadowing discussions on GST, it was then that the Kelkat task force suggested a comprehensive GST model based on VAT principle. The task force suggested the need of a new comprehensive Goods and Service Tax based on VAT principles to support the steady momentum that India had regarding taxation and reforms.
P.Chidambaram decided to implement GST Bill by 2010
Discussions on GST were in cold storage for a long time and were brought again on the table by our former finance minister P. Chidambaram in his budget speech of 2006-2007. In his speech he emphasized on the implementation of GST and the need of the country to switch and converge from the existing system to national GST. In one of the famous excerpts from his speech he said: It is his sense that the country should progress towards Goods and Services Tax (GST) that would be equally shared between the Centre and the state. Across the world, the goods and services tax attract the same rate, and it is better for the people of the country to get used to the idea of GST. He proposed that April !, 2010 should be set as the date for introducing GST and must start converging the service tax rate and the CENVAT rate.
It was only in the year 2006-2007 that some concrete steps were taken for the implementation of GST. An Empowered Committee was formulated constituting finance ministers of all states and union territories and it was assigned the responsibility of designing a roadmap for seamless implementation of GST.
First Discussion Paper was put on table
On November 10, 2009 the empowered committee recommended a dual GST model and put their First Discussion Paper (FDP) on table. However, the release of first FDP made it imperative that the proposed deadline for GST in the budget speech of 2006 cannot be met.
GST Bill deferred by a year
Shri Pranab Mukherjee, former finance minister and our current president in his budget speech of the year 2010-11 announced extension of deadline by a year for implementation of GST. Excerpts from his budget speech of the year 2010 are:
We have been focusing on generating a wide consensus on the design of Goods and Services Tax. The first discussion paper on GST was placed in the public domain in November, 2009 by the Empowered Committee of state finance ministers, Some significant recommendations on GST were suggested by the Thirteenth Finance Commission which are contributing to the ongoing discussions.
He said it will be his earnest endeavor to introduce GST in April 2011, along with DTC. The structure of GST and the modalities of its expeditious implementation are to be finalized and that they are actively engaged with the Empowered Committee for it.
115th Constitutional Amendment Bill, 2011
In order to bring GST, 115th constitutional amendment bill was tabled in Lok Sabha for the first time on 22nd March 2011. Despite the government being keen to introduce and pass the bill, it was referred to the standing committee due to lack of political consensus on 29th March 2011.
The standing committee took two years to give its report on 7th August, 2013.Since it was the the last year of the government, the bill if not passed would have lapsed on dissolution of Lok Sabha. In 2014, president Pranab Mukherjee dissolved the Lok sabha and as was expected, the 115th amendment bill lapsed with the dissolution.
122nd Constitutional Amendment Bill, 2014
After the new government came in charge, on 19th December 2014 the 122nd constitutional amendment bill to bring GST was tabled in Lok Sabha. The government had the required majority in Lok Sabha, it was expected that the bill would be cleared soon in Lok Sabha, however getting clearance from Rajya Sabha remained a challenge then. As was expected on 6th May, 2016 the 122nd amendment bill was passed by the Lok Sabha.
As expected, 122nd Constitutional amendment bill, 2014 was passed by Lok Sabha on 6th May 2016.
GST Bill tabled in and passed by Rajya Sabha
After getting clearance from Lok Sabha, the bill was tabled in Rajya Sabha. There were a number of differences in the opinions of the ruling party and opposition, getting clearance from Rajya Sabha was a tough task due to lack of majority and also because the assembly was adjourned a couple of times due to unhealthy arguments between the members of parliament. It was only on 3rd August 2016, that the bill was sent to Lok Sabha with few suggested changes. Lok Sabha approved the final bill on 8th of August, 2016 after incorporating the necessary changes.
Ratification from state assemblies
For the bill to be sent for presidential nod, ratification from a minimum of 16 states was required. Since the bill was passed with unanimous consent of all the parties, it took only 23 days to receive ratification from 16 states with Assam being the first one to ratify the bill.
President approves 122nd Constitutional Amendment Bill, 2014
After receiving the required ratification, the bill was sent to President and on 8th of September 2016 it was approved by the president and was the law of the land. Finally, GST was implemented nationwide on July 1st 2017.
Advantages of GST Implementation
The main reason for introduction of GST was the fact that the earlier system (VAT and Sales Tax regime) featured multiple taxes at multiple levels leading to various complications. The key advantages of GST implementation are:
- Elimination of multiple taxes
- End of cascading taxation
- Reduced complexity in tax computation and documentation
- Improvement in ease of doing business
- Single tax rate across the country
Components of GST
There are some key components that form the entire GST (Goods and Services Tax). These are:
- CGST – Central Government GST
- SGST – State Government GST
- UTGST – Union Territory GST
- IGST – Interstate GST
Total GST payable on a product or service = CGST + SGST/UTGST. IGST is applicable only when interstate transfer of goods is made. Thus in case of interstate supply of goods/services, total GST payable is equal to the IGST on the product. Know more about GST Rates
Tax Laws before GST
Before GST came into effect, the previous tax regime consisted of multiple taxes and cess main among which was VAT or value added tax. VAT was a state taxation subject and was applicable whenever value was added to goods as part of the process of changing raw materials to the finished good. Often though, as such value was added multiple times, VAT was applied to a product more than once till it reached the customer. This multiple taxation is termed as the cascading taxation effect. While GST has currently replaced VAT and other taxes in many cases, some products such as petrol, diesel and alcohol for human consumption still attract VAT instead of GST. Know more about VAT and how to calculate VAT on applicable products
Another tax that was applicable in the pre-GST regime was the sales tax. This too was implemented by the state as well as the central in the form of Central Sales Tax and State Sales Tax respectively. Sales tax was usually applicable whenever services were provided by one business to another or by a business to the end customer. GST implementation has subsumed sales tax across India. Know more about Sales Tax, how to file sales tax and how to calculate it for different products/services
Changes that GST Brings in
The main change that GST has brought in includes the following:
- Single tax rate applicable across the country
- Simpler compliance for businesses as tax is applied only once
- Benefit of Input Tax Credit for GST registered businesses
- Elimination of cascading tax effect
- More transparent taxation system as various checks can be performed online
- Possibility of increased indirect tax collection as more businesses get compliant