After years of discussion and trials, the Goods and Service Tax finally got its introduction in India on July 1st, 2017. Two years since the new tax regime changed the way indirect taxes are calculated in India by essentially consuming a plethora of indirect taxes, barring a few.
The landscape of taxation has seen a 180-degree change in the way the state and central government levies taxes. The goal of the GST in Indian Economy was to settle on one tax system for the entire nation. It’s meant to bring improvement in the way the business flows in the country and on an international level. The vision is to have a transparent transaction of cash to ensure no one evades tax. Along with it, filing of compliance on time and the common man has to deal with a lower tax burden.
It’s been an interesting journey for taxpayers and the government alike. It’s time we take a look at why a tax reform with only good intentions took so long to come into effect in India.
To know more about GST tax rate, read this article here.
1. The History
The talk of GST can be traced back to the year 2000, during the reign of the Vajpayee Government. A committee was set up to discuss the tax law. The head of the committee was Asim Dasgupta, the finance minister of West Bengal at that time.
The committee had two main responsibilities. One was to create the mainframe of the GST model. The other was to prepare a solid IT infrastructure so the eventual introduction of GST would be successful.
In 2003, Vijay Kelkar headed a task force that would look at the existing tax structure and suggest reformations. He was in favor of replacing the existing tax system with the Goods and Service Tax in 2004.
Shri P. Chidambaram, who was the Union Finance Minister, put forward the proposal of placing April 1 of 2010 as the deadline for implementing GST. This was during the 2006-2007 budget meeting.
The Empowered Committee had a road map of how GST would come to be in India. The discussion paper on GST became the topic of debate by the committee’s own will in 2009.
2009 also saw the Finance Minister Pranab Mukherjee saying out loud the idea of what GST would be like. In 2010 though, the finance ministry had to computerize commercial taxes in the states. Naturally, GST got postponed to the year 2011.
In the year 2011, the Congress Party finally introduced the 115th Amendment or the Constitution Bill. However, it opposition filled in from all sides. As a result, the standing committee came to be in charge of the bill. Meetings were a regular thing on the GST issue in 2012. Finally, 31st December of the year was the date cited for solving the issue.
The 2013 budget speech saw Chidambaram promising Rs. 9,000 crore to the states that would suffer from the implementation of GST. Finally, in 2014, the bill got clearance from the standing committee.
An unfortunate lapse occurred as Lok Shobha dissolved. The 122nd Amendment Bill got its introduction in Lok Sabha through Finance Minister Arun Jaitley.
In 2015, the new date for the GST rollout was fixed on April 1, 2016. Still, some complications existed, as only Lok Sabha approved the bill, not Rajya Sabha. The next year though, the Rajya Sabha let the bill pass as well. Finally on 1 July 2017, GST was effective pan India.
2. The Complications
The idea of GST wasn’t welcomed by the states at first. They didn’t wish to subsume all indirect taxes which was under the collection right of the states legally and hand it over to the center. It was a hard and long process convincing all 29 states to get on board with GST.
Why did they loathe the idea so much? The states didn’t want to give up this power because doing so would mean losing revenue. As you can see, GST could only go forward once compensation was proposed for the revenue they would lose in 2013.
Simply promising revenue isn’t enough though. It took years to further calculate what the compensation received by each state should be. It’s hard to put a number on the revenue a state would lose. As well as by what time the compensation amount would finally be enough for the states to function without it.
Each state had a separate reason for disliking GST. States such as Gujrat and Tamil Nadu were at a greater risk of losing revenue than the other. This is due to the nature of the GST bill and the fact it’s a destination-based tax.
Finally, when the states came to an agreement with the government, everything hinged on the amendment of the constitution. The tedious process calls for approval from the Lok Sabha and Rajya Sabha, which usually takes a long time.
The road to GST implementation might have been steep but the end result is what we’re looking forward to. The way tax is calculated and collected in the country has taken a complete turn in two years. It’s to be seen whether it is a good or bad change.
Frequently Asked Question (FAQs)
Who has the right to file a complaint with the NAA?
If a consumer or business sees there has been no reduction in the price rate despite the percentage that has been cut off in Goods and Service Tax, they have the right to file a complaint. They can’t do so without proper proof, however.
Supplier, wholesalers, retailers or any other kind of business who is supposed to get an input tax credit due to the rate drop in GST but hasn’t got so, is just as welcome to file a complaint with the NAA.
What do we know about the consumer welfare fund?
The government, in compliance with the GST law, has made a separate welfare fund. The fund is for the good of the consumers in India. If a person who is eligible doesn’t come up to claim the amount they are supposed to receive or are unavailable and can’t be contacted, the amount the taxpayer has paid is kept in the welfare fund for the time being.