GST in India – An Amazing Journey of 6 years

Tax Structure before GST:

Before GST was implemented, the tax system in India had multiple indirect taxes at various stages of the supply chain. These included taxes like Central Excise Duty on manufacturing, Service Tax on services, Value Added Tax (VAT) on intra-state sales, Central Sales Tax (CST) on inter-state sales, Entry Tax on goods entering states, Customs Duty on imports and exports, Excise Duty on petroleum products, and various local taxes imposed by states and local bodies.

This complex system led to a cascading effect where taxes were piled up, resulting in a higher overall tax burden. GST was introduced to simplify the tax structure, eliminate cascading effects, and establish a unified tax system nationwide.

History of GST in India:

Goods and Services Tax (GST) journey in India has been long, spanning several decades. It has involved discussions, deliberations, and reforms. Let’s take a closer look at the key milestones that led to the implementation of GST.

Kelkar Task Force (2002):

• In 2002, a task force led by Vijay Kelkar was formed to recommend tax reforms.
• They proposed the introduction of GST as a comprehensive indirect tax to simplify the complex tax structure.

Proposal for Constitutional Amendment (2006):

• In 2006, the Government presented a bill in Parliament to amend the Constitution and introduce GST.
• The aim was to grant concurrent powers to the central and state governments for taxing goods and services.

Formation of Empowered Committee (2007):

• The Empowered Committee of State Finance Ministers (EC) was established in 2007 to discuss and coordinate GST implementation.
• The EC played a vital role in representing state interests and facilitating consensus-building between the central and state governments.

First Discussion Paper (2009):

• In November 2009, the EC released the first discussion paper on GST, outlining its proposed structure, tax rates, and administrative mechanisms.
• This paper served as a foundation for subsequent deliberations and discussions on designing GST.

Constitution Amendment Bill (2011):

• In March 2011, the Government introduced the Constitution (115th Amendment) Bill in Parliament to enable GST implementation.
• The bill was referred to a Standing Committee for examination and recommendations.

Introduction of GST Bill (2014):

• In December 2014, the newly elected Government reintroduced the Constitution Amendment Bill for GST in Parliament.
• The bill aimed to establish a legislative framework for implementing GST in India.

Passage of Constitution Amendment Bill (2016):

• After extensive discussions and negotiations, both houses of Parliament passed the Constitution Amendment Bill for GST in August 2016.
• The bill required the approval of at least 50% of the state legislatures, which was subsequently obtained.

Formation of GST Council (2016):

• The GST Council was constituted in September 2016, consisting of the Union Finance Minister and representatives from all states.
• The council was responsible for recommending various aspects of GST, including tax rates, exemptions, and procedural issues.

GST Rates and Other Regulations (2017):

• The GST Council held multiple meetings to finalize tax rates for goods and services.
• They introduced multiple tax slabs, including 0%, 5%, 12%, 18%, and 28%, along with additional cess on specific goods.
• Various regulations, such as registration, return filing, payment processes, and transitional provisions, were formulated.

Implementation of GST (2017):

• On July 1, 2017, GST was officially launched in India, replacing the previous indirect tax regime.
• The implementation involved migrating existing taxpayers to the new system, conducting training and awareness programs, and establishing the necessary infrastructure.

The ‘Present’ of GST in India:

GST Structure:

• GST is a dual tax structure comprising the Central GST (CGST) levied by the Central Government and the State GST (SGST) charged by the state governments.
• Integrated GST (IGST) is levied on inter-state transactions and imports, with revenue shared between the center and the destination state.

Tax Rates and Slabs:

• Goods and services are classified into different tax slabs, including 0%, 5%, 12%, 18%, and 28%, with specific goods attracting additional cess.
• The GST Council periodically reviews and revises tax rates based on industry demands, economic conditions, and revenue requirements.

GST Council:

• The GST Council continues to play a crucial role in decision-making and policy formulation related to GST.
• It comprises the Union Finance Minister, the Minister of State for Finance, and representatives from all states and Union territories.

Compliance and Digitalization:

• GST has brought about a significant digital transformation in the taxation system.
• Businesses must register online, file returns, and make tax payments digitally, increasing transparency and efficiency.

Reforms and Amendments:

• GST has undergone several amendments and reforms to address challenges and streamline the tax system since its implementation.
• The Government has introduced measures to simplify compliance, reduce tax rates for certain goods and services, and enhance the ease of business.

Impact on the Economy:

• GST has contributed to the formalization of the economy, widening the tax base, and enhancing tax collections.
• It has facilitated ease of doing business by eliminating tax barriers between states and creating a unified market.
• GST has also played a crucial role in improving the country’s ranking in the World Bank’s Ease of Doing Business index.

Challenges and Concerns:

• Despite its benefits, GST implementation faced initial challenges such as technological issues, transitional complexities, and compliance burdens.
• The Government has been actively addressing these challenges by introducing reforms and simplifying procedures to make GST more taxpayer-friendly.

Goods and Services Tax Network:

The Government established the Goods and Services Tax Network (GSTN) in 2013 as a private company under the Companies Act of 1956. Its primary role is to provide registration, payment, and return services to taxpayers. Additionally, GSTN is responsible for developing technical modules that will be utilized by 25 states that have chosen to participate in the GST system.

To assist taxpayers in their interactions with GSTN, 34 IT, and financial technology companies have been identified and designated as GST Suvidha Providers (GSPs). These organizations will develop applications that taxpayers can use to engage with GSTN.

Key Features of GST in India:

The Goods and Services Tax (GST) introduced in India had some important features. Here are the main ones:

• One Nation, One Tax: GST aimed to create a single tax system nationwide. It replaced the complicated system of different taxes imposed by the central and state governments. This made the tax structure the same all over India.
• Dual GST Structure: GST has two parts: Central GST (CGST) and State GST (SGST). The central Government charges CGST, while the state governments charge SGST for transactions within their states. This way, both the central and state governments can collect taxes.
• Integrated GST (IGST): An Integrated GST (IGST) is charged for transactions between states and imports. It is collected by the central Government but shared between the central and state governments. IGST helps goods and services flow smoothly across state borders and simplifies taxes for businesses operating in different states.
• Input Tax Credit (ITC): GST introduced the concept of Input Tax Credit. This allows businesses to claim credit for the taxes they have paid on inputs or purchases. It prevents paying taxes multiple times on the same value and reduces the burden of taxes. It promotes transparency and removes the burden of tax on tax.
• Threshold Exemption: Small businesses have a threshold exemption under GST. If their annual turnover is below a specific limit (currently INR 40 lakhs for most businesses), they don’t have to register for GST or pay taxes. This helps reduce the compliance burden for small-scale businesses.
• Online Compliance and Common Portal: GST brought an online platform called the Goods and Services Tax Network (GSTN). It is a common portal for registration, tax return filing, and other compliance-related tasks. This made the tax administration process more efficient, transparent, and accessible for taxpayers.
• Rationalization of Tax Rates: GST categorized goods and services into different tax slabs. Currently, there are four main tax slabs: 5%, 12%, 18%, and 28%. Some goods and services have a lower rate of 0% or a higher rate of cess. This system ensures uniformity and simplifies tax rates.
• Reduction of Tax Cascading: GST aimed to eliminate the cascading effect of taxes in the previous system. By allowing input tax credits and providing a unified tax structure, GST reduces the tax burden on businesses and promotes a more efficient and competitive marketplace.

Benefits of Implementation of GST in India:

The implementation of Goods and Services Tax (GST) in India has brought several benefits:

• Simplified Tax Structure: GST replaced multiple taxes with a single tax, making it easier for businesses to understand and comply with tax rules.
• No More Tax on Tax: GST introduced Input Tax Credit, eliminating the practice of taxes being charged on top of other taxes. This reduces costs for businesses.
• Uniform Taxation: GST created a consistent tax structure across the country, making it easier for businesses to operate in different states.
• Easy Compliance: GST introduced an online platform for tax-related activities, reducing paperwork and making compliance processes more efficient.
• Smooth Supply Chain: GST eliminated entry taxes and other barriers, enabling smoother movement of goods across state borders and improving supply chain efficiency.
• Increased Tax Compliance: GST expanded the tax base, bringing more businesses into the formal tax system and increasing tax revenues for the Government.
• Curbing Tax Evasion: GST implemented measures to prevent tax evasions, such as invoice matching and digital transactions, leading to higher tax collections.
• Boost to Manufacturing and Exports: GST reduced the tax burden on manufacturers and exporters, making Indian goods more competitive globally.
• Positive Impact on Consumers: Overall, GST aimed to reduce the tax burden on consumers by eliminating the tax-on-tax effect, contributing to lower prices for goods and services.

Conclusion:
Thus above was a brief history of GST in India. After GST, we have seen prominent growth in the taxation system and the overall economy. Still, many changes are to be implemented to strengthen GST, and the Government is taking necessary actions to improve and overcome the challenges.