Implementation of GST | Historical introduction to GST

Editor’s Note: Implementation of GST

The implementation of GST, Goods and Services Tax, in India was a significant milestone. Several years have passed since GST was implemented in the country. Here is a take on the background, what it sought to achieve, the journey so far, and the road ahead for this integrated indirect tax regime in the country, by Ayush Tomar. A relevant read for those who may not have had much historical context about the implementation of GST.

Introduction to GST

The Latin word “taxare” which means “estimate,” is the source of the English term “tax”. Tax is the mandatory financial charge imposed by the government or other authority on individuals, businesses, or other entities to fund public expenditure and other government activities. The Indian taxation system comprises of Direct Tax and Indirect Tax.

The hardest thing in the world to understand is income taxes.
Albert Einstein

Goods and Services Tax (GST) is one of the most discussed indirect tax reforms, introduced in the year 2017. It is a comprehensive multistage value-added tax (VAT) levied on manufacture, sales and consumption of goods and services. It has 3 prime models: CGST, SGST and IGST.

The GST based taxation system was expected to help increase the GDP growth rate by over 1%. It has reduced tax theft and corruption in the country. The GST Council, the apex body that governs the GST system in India, is comprised of representatives from both the Central and State Governments.

A Synopsis of India’s Goods and Services Tax History

India’s implementation of GST was a notable tax reform that aimed to streamline the nation’s indirect tax system.

The idea of GST was first proposed in India in the 2006-2007 Union Budget by the then Finance Minister P. Chidambaram. A GST panel was set up in 2007 under the chairmanship of Asim Das Gupta, the then Finance Minister of West Bengal, to design its structure. In 2011, the Constitution (One Hundred and Fifteenth Amendment) Bill was introduced in the Parliament to amend the constitution and pave way for introduction of goods and services tax. After several rounds of negotiations and deliberations, the GST council was constituted in September 2016, consisting of the Union Finance Minister and the Finance Ministers of all the states.

The bill was passed by the Lok Sabha on March 29, 2017 and by Rajya Sabha on April 6, 2017. The GST Act came into effect on July 1, 2017, replacing multiple indirect taxes such as excise duty, service tax, and value-added tax (VAT).

India’s Goods and Services Tax is divided into four tax slabs – 5%, 2%,18%, and 28%, with essential commodities such as food and healthcare being taxed at a lower rate or exempted altogether. Notwithstanding some early implementation issues, the introduction of GST is widely regarded as a watershed moment in India’s tax structure.

Objectives of GST

The primary objective of India’s Goods and Services Tax is to subsume all sorts of indirect taxes in India and implement a single taxation system. It would help to eliminate the cascading consequences of tax on production and distribution cost of goods and services. This in turn helps to increase the GDP.

Another important objective of GST is to bring uniformity of tax rates across the country and reduce tax evasion. Additionally, it intends to simplify the compliance requirements by having a single window for registration, filing of returns and payment of indirect taxes. Thereby reducing compliance burden on taxpayers. Furthermore, it enhances the cause of cooperative federalism.

Today, it takes more brains and effort to make out the income-tax form than it does to make the income.
Alfred E. Neuman

Effect of GST on the Indian Economy

The installation of the GST has a huge impact on the Indian economy, both positively and negatively, just as we know that every coin has two sides.

Positive Impact of GST Implementation

The implementation of the GST has made the tax system simpler. Also, by lowering production costs and raising the competitiveness of Indian goods in the international market, it has improved exports’ competitiveness. GST has broadened the tax base and raised tax collections for the government, which may now be put towards social welfare initiatives, infrastructure improvements, and other forms of development. By lowering trade obstacles across states, it has also aided in the creation of a united market. As a result, doing business is easier and Indian enterprises are now more competitive.

GST will act as catalyst to help strengthen trust between Centre and States.
Indian Prime Minister Mr. Narendra Modi

Negative Impact of GST Implementation

Initially the implementation of GST faced several challenges such as IT infrastructure issues, lack of awareness among taxpayers, and confusion over the tax rates because the tax structure is complex. There are multiple tax rates and different compliance requirements for different industries. This has increased the compliance burden on businesses. However, other industries, like the service sector, which were previously taxed at a lesser rate, are now subject to a larger tax burden under GST. As a result, certain industries have experienced some challenges.

Conclusion

GST has been a game-changer for the Indian economy. It has improved the efficiency, openness, and unification of the Indian tax system. To guarantee that GST is implemented efficiently and continues to stimulate growth and development in the Indian economy, the difficulties encountered during implementation must be resolved.

An efficient GST formulation, expansion of tax base and an increase in tax compliance will be the main drivers of resource and revenue gains for the Centre and States. GST has positioned India as a more desirable location for businesses and investors, thanks to its benefits and possibilities, ensuring a better future for the Indian economy.

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Ayush Tomar - GST - From The Experts Mouth — Ayush Tomar

About The Author

Ayush Tomar is currently pursuing his Bachelor’s degree in Shri Ram College of Commerce, Delhi University. He is mainly focused in the field of Consulting and Research, and also has a keen interest in entrepreneurship and exploring startup culture.

Ayush loves penning essays and journals, and likes writing down his ideas and opinions, as this makes him feel better. He enjoys reading fiction, especially mysteries, and used to paint and draw in his spare time.