One Nation One Tax – Goods and Services Tax

Introduction

Before the 1st July, 2017, Indian indirect tax regime was highly fragmented. Centre and States were separately taxing Goods and services. There were many taxes like excise duty, service tax, VAT, CST, purchase tax, entertainment tax, octroi.
• In addition, there was multiplicity of rates. Law and procedures. This caused heavy compliance burden.
• Imposition of tax on tax was another serious problem. For example, VAT was levied on a value that included excise duty.

Input tax credit chain broke as goods moved from one state to another, resulting in hidden cost for the business.
• Further, pre-GST, there were tax nakas at every inter-state border, creating bottlenecks in inter-state transport of goods.
• As a result, logistics sector remained inefficient and it adversely impacted the businesses.
• Every state was effectively a distinct market for the industry as well as consumer.
• Industry’s choice of locating factories or warehouses was heavily influenced by the prevailing tax regime rather than pure business consideration.
• This made our industry uncompetitive

• Therefore, it was a momentous occasion when the Goods and Services Tax (GST), the biggest tax reform, was rolled out on July 1, 2017 from precincts of the Central Hall of Parliament. GST removed the inefficiencies and complexities of the erstwhile archaic taxation system and helped in accelerating growth.
• GST is not merely a tax reform but a milestone in realizing Sardar Vallabhbhai Patel’s dream of building ‘ek bharat – sreshtha bharat’.
• As Prime Minister Modi aptly said, Sardar Patel oversaw the merger of over 500 princely states to catapult India as world’s largest democracy while GST integrated them economically.
• Any such reform would not have been possible without taking each and every state on board.
• However, this was not easy. Each state was at a different stage of development, had varied economic activities and priorities and had distinct source o revenues. More than anything else they had freedom to frame their indirect tax policies and had discretion in choosing the tax base and rates.
• While, in principle there may not have been much disagreement to the need of having a GST regime, the issue of pooling in the sovereign power of Centre and States coupled with fear of loss of revenue were real challenges.
• Foundation to unify the country’s markets was laid in 2000 by the then Prime Minister Atal Bihari Vajpayee. The visionary that he was, Vajpayee took the lead and set up a high- powered panel to design the right GST model to suit India’s diversities and complexities.
• Public announcement for roll out of GST from 2010 was made in the year 2006. However, no further progress could be made for a long period after this initial announcement and consensus on knotty issues remain elusive. GST roll out was postponed.

It was only the coming of new Government to power in the Centre, in the year 2014, that spurred the process. Shri Narendra Modi gave the vision of India working together as one to achieve the economic goals of the Country. In building this economic future, he emphasized the need for a single tax system across to country.

Under this vision and guidance of Prime Minister, it was the painstaking effort of Shri Arun Jaitley, the then Union Finance Minister, that brought in the consensus amongst States against all odds.
Post 2014, the Central Government expedited the process, resumed discussions with states and all other stake holders with new vigor. It began working simultaneously on to expedite the process.
First and foremost was the requirement of amendment of Constitution, as GST levy with concurrent powers to Centre and State in the sphere of taxation was something new to the Constitution and required an innovation. A Constitution Amendment Bill was tabled in Goods and Services Tax 6 the Parliament in May, 2015 and overcoming a the Parliament in May, 2015 and overcoming all hurdles, the Central Government ensured that the Bill was enacted in August, 2016.

Simultaneously, the central Government brought States together and started working on other aspects of GST, e.g., law, GST model for interstate supplies, IT system for GST (created GSTN in 2015), and addressing issues that posed challenges to taxation of goods and services in a dual tax administration. The pace of interaction with stake holders, i.e., trades, associations, economist, common people was increased and the whole process was institutionalized.

Two significant initiatives of the Government of India – creation of the GST Council and assuring the States of a guaranteed revenue flow to them proved to be decisive in bringing the States on board.

Creation of GST Council, by the Central Government, gave a platform for state to express their concerns which were resolved amicably after long spell of deliberations. Further, Government of India assuring each State a minimum growth of 14% per year for five years over their revenues. This commitment of Centre clearly showed its belief in the long term benefits of GST and helped assuage the concerns of the States.

Creation of GSTN, a special purpose vehicle, by the Central Government, for automation of business processes with equal participation of Centre and States, with its adequate resourcing was also a major step taken by central Government towards GST.

The unrelenting approach and sincere efforts of the central Government ensured that all thorny issues in the way to GST are resolved to the comfort of States. GST Council also made significant contribution in bringing the consensus.

Journey to GST – Mile stones – presented in PPF format.

Source: Press release