This article is written by Lakshay Kumar, a second-year B.A.LLB student of Delhi Metropolitan Education, Indraprastha University. In this article, he talks about the evolution of GST in India, how the idea of GST inculcated, GST in other countries and its advantages and disadvantages.
Goods and Service Tax is one of the biggest tax reforms in India. It is an indirect tax that is levied on the manufacture, sale, and consumption of goods and services at the national level. After its implementation, various indirect taxes such as value added tax, Central excise duty, entertainment tax, luxury tax, etc were abolished. The main reason behind introducing GST was to unify all the indirect taxes and have one indirect tax system. In simple terms, it means “one nation one tax”.
GST is said to be a turning point in the taxation system as it would help in resolving various problems that the Indian economy is going through. GST is a multistage and a destination based tax. It is multistage because at every stage of the production tax would be levied and it is destination based tax because the ultimate revenue which is to be collected will depend upon where the goods were purchased. So for example, if certain goods were produced in Maharashtra but the goods were purchased in Karnataka then the revenue collected by selling that good will go to Karnataka and not Maharastra.
Constitutional History of GST
- Although GST was introduced on 1st July 2017, it was not a sudden decision, it took almost 17 years to implement GST. The idea of GST was first thought in 2000 during Atal Bihari Vajpayee’s regime.
- The then prime minister gave the green signal to draft a GST model under the leadership of the then finance minister Asim Dasgupta. The committee headed by Asim Dasgupta and other members created an empowered committee that was given the task of creating a structure of GST. This empowered committee looked into the various aspects of GST, made proposals and looked for suggestions.
- Later in 2004, a task force was set up under the chairmanship of Vijay Kelkar the then finance advisor to the finance minister. The committee indicated that the current indirect tax system had many defects that would be resolved by GST.
- In 2005 the then finance minister P Chidambaram said that the government’s long term goal is to implement a uniform GST throughout India covering the whole production and distribution chain, this was discussed in the parliament. In February 2006 the then finance minister gave 1 April 2010 as the introduction date of GST, in the same year the central government gave advice to all the states to make reforms for the implementation of GST. In the coming years that is 2007 and 2008 considerable changes were made in the direction for the implementation of GST and the date of implementation remained the same that is 1 April 2010.
- In 2009 finance minister Pranab Mukherjee announced the basic skeleton of GST. In 2010 the government introduced a mission made a project that lay the foundation of GST. This project was allocated around 1300 crore, following this the final implementation date was moved one year forward, meanwhile the Asim Dasgupta Committee put forward its First Discussion Paper describing the post- GST regime.
- It was also expected that after this paper more and more discussions will be held and more stakeholders will put their views forward. Finally, after all the discussions and deliberations a 115 Constitutional Amendment was tabled before the house for the introduction of GST, however, because of stiff opposition, the bill was sent to the standing committee for detailed examination.
- The standing committee started a discussion on the bill, till then the central government provided 9,000 crore compensation to the state government and appealed for their support in working together for the reforms in the indirect tax system.
- In 2013 the standing committee panel approves the regulation with some suggestions and for a mechanism for redressal of grievances. However, nothing could be done after that and in May 2014 the bill collapsed.
- After the coming in of the new government under Narendra Modi, the process of introducing GST was fastened and in December 2014 the 122 Constitutional Amendment bill was introduced in the Parliament. It got passed in the Lok Sabha on May 2015 and from the Rajya Sabha in August 2016, during this period of one year the government was listening to various problems of the state as well as the opposition and after doing that the bill was passed and it was sent to the President for its assent. honorable President gave his assent on September 2016 and finally after 17 years a proper GST was introduced on 1 July 2017.
GST and the International Scenario
- India formally introduced GST in 2017, but prior to India, there were at least 140 countries that had introduced GST in their own countries. France was the first country to introduce GST in the year 1954 after France Germany introduced GST in 1968. The United Kingdom and Italy in 1973, South Korea in 1977, Japan in 1989, Canada and Australia in 1991 and 2000 respectively China introduced a single GST in the year 1994.
- However, the impact of GST on the economies of each and every state is not uniform and neither the changes were made in a positive direction, some of the countries had to face many problems post- GST implementation.
- Let us take an example of Singapore where there is a single GST rate. Initially when the government implemented GST the rate was fixed to be 3 percent and said that the government would not hike the rate for the next 5 years as a result of which there was a situation of inflation as people were able to spend more without fear, however later the government in order to tackle the problem increased the GST rates, one more thing to be noted here is that Singapore also had a compensation scheme for the disadvantaged segments of society.
- Another country that faced the problem of high inflation was Canada, soon the Canadian government had to reduce the GST rate from 7 percent in 2005 to 5 percent in 2008. However, the UK never experienced inflation problems as it was assumed that VAT has replaced canceled consumption tax and therefore the impact was not felt.
- In Australia, the situation of inflation was restored within a year. In Australia there was a spike in the domestic consumption as people started hoarding before the new law came into force, this led to slow down in the economy but situations were normalized within a year.
- Therefore from the above situations, we could conclude by saying that GST works well when there is a slow down in the economy and any inflationary tendency could thus be controlled.
- As far as the rates are concerned, different countries have different rates. If we look at the Scandinavian countries we see that the GST rates have been as high as 25 percent. Uruguay Argentina also has high rates of GST as high as 22 and 21 percent. India although also have high GST rates as high as 28 percent but things are changing as in every GST council meeting a large number of articles have been removed from the 28 percent bracket and are put under 18 percent bracket or 12 percent bracket. More than 90 percent of the articles have been put below 28 percent bracket.
The GST council was set up with the objective of smooth functioning between the states and the center. GST council is set up of the following members:
- Union finance minister.
- Union minister of state in charge of revenue or finance.
- Minister in charge of finance or taxation or any other minister nominated by each state government.
The decisions of the council are made by a three-fourths majority, a one-third vote is with the center and a two-thirds vote is with the state, each state has one vote. A secretary would be appointed who will be the ex officio secretary of the council. The chairman of the CBEC would be appointed as a permanent invitee in every meeting but will have no voting rights. An additional secretary post at the GST secretary council would be created. Four posts of commissioners at the GST secretary council would be created.
According to Article 279A(4) of the Constitution GST council has the power to give recommendations on:
- Taxes, cess, and surcharges that are levied by the state or the center which could be included in the ambit of GST.
- Goods and services that may be ruled out or exempted from the ambit of GST.
- A minimum turnover business that could be exempted from GST.
- The rates including floor rates with bands of Goods and services tax.
- Any special rate to be charged for a limited period during emergency times.
- And on any matter that may fall within the jurisdiction of the council as the council may seem fit.
Apart from all this, the procedure to determine the functioning of the GST council shall be determined by the council itself. No decision of the council would be termed invalid merely because of any vacancy or defect in the constitution of the council, or because of any defect in the appointment of the member, or if there is any irregularity in the procedure that would likely affect the merits of the case.
Dispute Resolution Mechanism
Any dispute arising either between:
- The center on one hand and a state on the other, or
- The center and one or state on one hand and one or more state on the other hand,
- Two or more states.
Shall be adjudicated by the GST council.
Advantage and Disadvantage of GST
- The biggest advantage of GST is that it has brought all the indirect tax under one single comprehensive tax umbrella.
- According to various experts, the cost of all the goods and services will be reduced as the cascading effect of vat will be abolished.
- Service provider companies that have an annual turnover up to twenty lakhs are exempted from paying GST, in the northeastern part of the country the situation is different where the amount is 10 lakhs.
- All companies with a turnover of up to 75 lakh can also take advantage of the composition scheme by paying only a 1 percent tax of the total turnover.
- GST helps in regulation of various unorganized sector which includes the textile ministry.
- GST has reduced taxes from two percent to 7 percent from smartphones and cars.
- Through GST, the chances of tax evasion are also minimized.
- Another big advantage of GST is that it has brought down the logistics cost by twenty percent which includes border tax. It has also helped in resolving various check post issues.
- GST overall has a big positive impact on the country’s GDP, which is expected to increase in the next couple of years.
- The biggest disadvantage with GST is that it leads to an increase in the cost of software products since GST is a transformational change new software has to be used instead of the old ones.
- GST is sometimes termed as a disability tax as GST is now applicable to wheelchairs, braille papers, etc.
- GST may be beneficial for the MSME sectors as companies with turnover up to 75 lakhs can avail the benefit of the composition scheme by [paying only 1 percent tax but the catch here is that they are to claim credit for the input tax.
- However, the biggest impact of GST has been on the real estate sector as the prices rose by eight percent and the demand fell by twelve percent as soon as it was brought under the ambit of GST.
GST is one of the biggest tax reforms that are likely to benefit the nation in the long run. It not only provides relief to the consumers by bringing the taxes down in the from various commodities but it has also led to an increase in the government revenue, not only the center but to the states as well. GST has also minimized the chances of tax evasion and which was prevalent in the earlier regime. Although many have also pointed out the defects of GST which is obvious as when you take a big step there are pros and cons but ultimately the bigger picture has to be looked upon, GST in India is a new concept and therefore proper implementation of it has to be the utmost priority of the government, new challenges have to be cooped up quickly one of the challenges that need to be resolved is whether petroleum be brought under GST or not and if it is included then in what tax bracket would it be put. But overall if we see the bigger picture we could find that GST has a positive impact on the country’s economy and it would help in the overall development of India’s growth.
- https://www.gktoday.in/gk/composition-functions-of- GST-council/
- http://ijariie.com/AdminUploadPdf/GOODS_AND_SERVICE_TAX__ GST__ADVANTAGES_AND_DISADVANTAGES_IN_INDIA_ijariie7163.pdf
- https://www.bankbazaar.com/tax/history-of- GST.html