GST launch: 40-year journey to a common market

GST rollout: Launch of VAT was announced with effect from April 1, 2002, but the date was pushed back to April 1, 2003 in the face of severe resistance from traders, especially in BJP-ruled Delhi and a few other states.

Written by Shaji Vikraman | Updated: July 1, 2017 9:05 am
GST, GST rollout, GST implementation, Goods and services tax, economy, india economy, Arun jaitley, Finance Minister Arun Jaitley in his North Block office Thursday, a day before the formal launch of the Goods and Services Tax in Parliament. (Source: Express photo by Renuka Puri)

At the stroke of midnight, India will transition to a new indirect tax regime. The Goods and Services Tax will weave the country’s $ 2 trillion economy and 1.3 billion consumers into a single market. It will be one of the most complex and ambitious tax reforms attempted by any government anywhere in the world. SHAJI VIKRAMAN walks the remarkable road to GST.

1978: The Indirect Taxation Enquiry Committee headed by L K Jha, who had served as Principal Secretary to Prime Ministers Lal Bahadur Shastri and Indira Gandhi, and as the eighth Governor of the Reserve Bank of India from 1967 to 1970, made out a case for a change in the taxation structure by moving to a Modified Value Added Tax.

1986: V P Singh, Finance Minister in the Rajiv Gandhi government, picked up the thread in his Budget — India’s excise taxation system was overhauled with the introduction of a Modified Value Added Tax or MODVAT scheme, which aimed to enable manufacturers to obtain instant and full reimbursement for excise duty paid components and raw materials. MODVAT was rolled out on March 1, 1986 with the intention of reducing the cascading effect of multipoint excise levies and, eventually, overall prices that consumers paid.

1991-92: Manmohan Singh, Finance Minister in P V Narasimha Rao’s government, appointed economist and public finance expert Raja Chelliah to head a Tax Reforms Commission, which recommended the introduction of Value Added Tax or VAT, and service tax. In 1994, services were taxed for the first time.

1997: In his “Dream Budget”, P Chidambaram, Finance Minister in H D Deve Gowda’s United Front government, slashed peak Customs duty from a high of 50% to 40%, and simplified the tax structure.

1999: Under Yashwant Sinha, Finance Minister in Atal Bihari Vajpayee’s government, work began on the unfinished agenda of tax reforms. The Centre and states agreed to put an end to the sales tax war, and settle for uniform floor rates for various commodities with effect from January 2000. Sinha got the Finance Minister of Left-ruled West Bengal, Asim Dasgupta, to head the Empowered Committee of Finance Ministers to build a consensus on some of the proposed fiscal changes in the spirit of co-operative federalism. Work began to launch VAT in the country.

2001-02: Launch of VAT was announced with effect from April 1, 2002, but the date was pushed back to April 1, 2003 in the face of severe resistance from traders, especially in BJP-ruled Delhi and a few other states.

2003: During the tenure of Jaswant Singh as Finance Minister, the Constitution was amended to explicitly allow the Centre to tax services. Singh assigned his Adviser, former Finance Secretary Vijay Kelkar, to work on the implementation of the Fiscal Responsibility and Budget Management (FRBM) Act. A report produced by a Task Force unveiled the first design of a Goods and Services Tax (GST), suggesting a single rate of 7% for states and 5% for the Centre in a grand bargain. The implementation of VAT was pushed back to April 1, 2005.

2005: Under Prime Minister Singh and Finance Minister Chidambaram, state VAT was rolled out on April 1, 2005.

2007: In his Budget speech, Chidambaram announced that GST would be rolled out in April 2010. The Empowered Committee was mandated to work on the new law. Asim Dasgupta and his successor in the post, BJP leader Sushil Kumar Modi, met states and other stakeholders to build a consensus.

2009: With Parthasarathi Shome as Adviser to the Finance Minister, the Ministry unveiled the first discussion paper on GST.

2009-10: The terms of reference of the Thirteenth Finance Commission were broadened to include GST. The Commission suggested compensation to states, and offered a grant to the Empowered Committee.

2011: Finance Minister Pranab Mukherjee introduced The Constitution (115th Amendment) Bill for the GST framework. The Bill was referred to the Standing Committee on Finance headed by Yashwant Sinha, which submitted its report in 2013. All through, BJP-ruled states, led by Gujarat and Madhya Pradesh, under Chief Ministers Narendra Modi and Shivraj Singh Chouhan, kept up fierce opposition, as did Tamil Nadu.

2013-14: The UPA government failed to get the proposed law through Parliament; the Bill lapsed. The Goods and Services Taxation Network (GSTN), the backbone of the proposed new taxation structure, was promoted after a committee headed by former Infosys CEO Nandan Nilekani recommended it.

2014-15: Arun Jaitley, Finance Minister in Prime Minister Modi’s government, introduced the Constitution Amendment Bill in December 2014, which was approved by Lok Sabha in 2015, and subsequently referred to the Select Committee in Rajya Sabha.

2016: Rajya Sabha approved the Bill, and the GST Council, the forum for states and the Centre on determining rates and other key issues, began work. April 1, 2017 was initially fixed as the rollout date, but was subsequently deferred.

2017: Jaitley invested a lot of political capital, working the phone, speaking to leaders across the spectrum, and Chief Ministers, to get them on board. The government announced GST’s national rollout on July 1.

‘A flawed GST’

The history of GST is a telling commentary on our economic reforms and its acceptability, considering that it has taken well over a decade… My regret is the introduction of multiple rates has put paid to the whole concept of simplification of indirect taxes, as multiple rates lead to classification disputes and avoidable litigation and discretion at official and political levels. We have regressed going to the 28% slab. It is a flawed GST which is being implemented, compared to the original one. There should at best be three rates — the mean rate, merit and de-merit rates. If you start with multiple rates, it becomes very difficult to compress or collapse it later because of the nature of our polity… For each change, you need to consult the states in the GST Council and get it approved.
–YASHWANT SINHA, Finance Minister, 1990-91, 1998-2002 (As told to Shaji Vikraman)

‘A fateful moment’

We end… a period of self-inflicted ill-fortune. India unveils a new, though imperfect, tax regime. We have endured the pains of blind opposition and our hearts are heavy with the memory of lost years. Some of the pains continue even now. The past clings on to us in some measure. We have to do much before we bring a true GST, as well as petroleum, electricity and alcohol under GST. It is a fateful moment… for all of India. Stakeholders down to the common man must be educated on GST. –P CHIDAMBARAM, Finance Minister, 1996-98, 2004-08, 2012-14 (Excerpted from column in The Sunday Express, ‘Across the Aisle’)

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