At the stroke of midnight of June 30-July 1, India will awake to “one country one tax regime.” As it will be the biggest indirect tax reform of the country, we are looking into the history of GST and indirect taxes in India.
The reform process in indirect taxes was started in 1986 by Finance Minister Vishwanath Pratap Singh by introduction of Modified Value Added Tax (MODVAT). MODVAT was early form of the present day VAT.
Few years later, Manmohan Singh who is also known as architect of economic reforms, took it forward. He extended MODVAT to almost all commodities and reduced excise duty rates. Later Yashwant Sinha introduced a full -fledged VAT for UED in the name CENVAT in 1999. In 2006, most of the states had adopted VAT structure for their sales tax.
The first move towards GST was made by Atal Bihari Vajpayee government in 2000 by initiating discussions with state Finance Ministers. In 2004, Vijay Kelkar suggested a comprehensive GST and in the next year, P Chidambaram set launch of GST as a budget goal.
A proposal to introduce a National level Goods and Services Tax (GST) by April 1, 2010 was first mooted in the Budget Speech for the financial year 2006-07.
In order to amend the Constitution to enable introduction of GST, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha in March 2011. As per the prescribed procedure, the Bill was referred to the Standing Committee on Finance of the Parliament for examination and report.
The 115th Constitutional (Amendment) Bill, 2011, for the introduction of GST introduced in the Lok Sabha in March 2011 lapsed with the dissolution of the 15th Lok Sabha.
In June 2014, the draft Constitution Amendment Bill was sent to the Empowered Committee after approval of the new Government.
Based on a broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in the country.
The Bill was introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on 06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which submitted its report on 22.07.2015.
GST was introduced as The Constitution (One Hundred and Twenty Second Amendment) Act 2017, following the passage of Constitution 122nd Amendment Bill. The GST is governed by GST Council and its Chairman is Union Finance Minister of India - Arun Jaitley.
With the introduction of GST, the following taxes will be bound together – Central Excise Duty, Service Tax, Commercial Tax, Value Added Tax (VAT), Food Tax, Central Sales Tax (CST), Octroi, Entertainment Tax, Entry Tax, Purchase Tax, Luxury Tax, Advertisement taxes and Taxes applicable on lotteries.
Following are the chronology of events leading to indirect tax reform in India:
# 1935 Govt of India Act, 1935 made tax on sales of goods a provincial subject
# 1939 Sales Tax launched in India in the State of Madras
# 1941 Sales tax launched in the State of Punjab; other states follow in later years
# 1974 LK Jha Committee suggested introduction of value added tax (VAT) in India
# 1986 MODVAT or modified VAT, introduced on select commodities
# 1991 Raja Chelliah Committee recommended VAT
# 1994 Service tax introduced in India
# 1999 Centre announced decision to introduce VAT in India
# 2002 CENVAT or introduced on all commodities at central level
# 2003 VAT introduced in first Indian State of Haryana
# 2005 VAT in 24 States/UTs including Punjab, Chandigarh, HP, J&K and Delhi.
# 2006 VAT implemented in 5 more States including Rajasthan.
# 2006-07 Proposal for GST first mooted in the Budget Speech for the financial year. Negotiation with States started began soon after
# 2008 Empowered Committee of State Finance Ministers (EC) engaged
# 2009 EC released its First Discussion Paper
# 2011 Constitution Amendment Bill on GST introduced
# August 2013 Parliamentary Standing Committee submitted its report. Recommendations of Standing Committee incorporated in the Bill
# September 2013 Revised Bill sent to EC for consideration
# March 2014 Incorporating recommendations of EC another revised Bill sent to EC
# December 2014 Constitution Amendment Bill introduced in Lok Sabha
# May 5, 2014 Lok Sabha passes GST Bill
# May 2015 Lok Sabha passes Constitution Amendment Bill for GST