When Was GST Introduced in India?
GST is also known as good and service tax. It is an indirect tax levied on goods and services that are majorly manufactured, sold, and consumed domestically within the country. When GST was introduced in India, it was considered to be one of the biggest reforms in the Indian Taxation structure as it would help to eliminate all the indirect taxes levied by state and central governments on goods and services. The bill was passed on 29 March 2017, and it was brought into effect in July 2017.
When was GST introduced in India?
The whole idea of introducing GST in India was brought to fruition under the Vajpayee Government. This was a big initiative towards the betterment of the economic structure of India. The whole journey from 2000 to 2017 is explained below:
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1. 2000: An Empowered Committee comprising of Finance Ministers of Different states was formed and was assigned the task of formulating a structure for GST by the then Prime Minister Shri Atal Bihari Vajpayee. The members of this EC were chosen based on their experience in designing State tax. The center and state representatives were requested to view the GST proposal and submit a detailed analysis on the limitations, exceptions, and various taxes levied on goods during inter-state transport This committee was led by Asim Dasgupta, finance minister of West Bengal, for a duration of 11 years.
2. 2004: Vijay L Kelkar, head of a task force also the advisor to the finance ministry brought to light the shortcomings of the existing taxation structure and how they would be eliminated through GST.
3. February 2005: During the discussion in the budget session for the financial year of 2005-06, our then finance minister Mr. P Chidambaram stated that implementation of a Unified taxation system across the country covering the entire production-distribution chain should be the long term of the Government.
4. February 2006: 1st April 2010 was decided as the date for the introduction of GST.
5. February 2007: During the Union budget of 2007-08, the introduction date for the GST remains unchanged.
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6. July 2009: The GST implementation project was still on track and the newly elected finance minister Mr. Pranab Mukherjee presented an overview of the upcoming GST system.
7. November 2009: The First Discussion Paper was put forward by the EC which contained the details of the discussed GST regime to get any feedback for its improvisation from its input stakeholders.
8. February 2010: For laying the cornerstones of the GST, the Government started a mission mode project. This project though helped in computerizing the commercial taxes across states, came with an expenditure of Rs. 1133 crore. This pushed the implementation dates by a year.
9. March 2011: When the Congress Party-led government tried to introduce the bill for the introduction of GST, it was followed by protests from the Opposition party and thus, the bill was sent for a detailed examination to a standing committee.
10. June 2012: The 279B clause of the amendment was brought to the limelight by the opposition parties as it gave the government power over GST dispute authority.
11. November 2012: After the concerns that were raised, P Chidambaram along with state finance ministers held meetings, and 31st December 2012 was decided as the deadline for resolving all the issues.
12. February 2013: During the budget session of 13-14, it was announced that the central government will provide a compensation of Rs.9000 crores to states.
13. August 2013: After a good number of discussions between the state finance ministers and the central Government a report was created by the standing committee that was submitted to the parliament. With a few changes to the tax structure, the panel approved the bill.
14. October 2013: The state of Gujarat opposed the bill, in particular, owing to the fact that a loss of Rs14,000 crore per annum would have to be bear by the state due to the destination-based taxation rule.
15. May 2014: The Constitution Amendment bill lapsed again.
16. December 2014: With the formation of the new Government, Arun Jaitley was appointed as the new finance minister. The constitution Bill was submitted by him and was again sent to Standing Committee on demands of the Opposition Party.
17. February 2015: Jaitley in his budget speech mentioned the fact that the Government is looking forward to implementing the GST Act by April 2016.
18. May 2015: The bill is passed in Lok Sabha. It was declared by the finance minister that petroleum was exempted from taxation under GST.
19. August 2015: The bill did not pass in the Rajya Sabha.
20. March 2016: Jaitley in one of the meetings suggested that he is on the same page with Congress’s demand over the GST rate not exceeding 18%. He said that though he agrees with rates not exceeding 18%, he is not very keen on fixing this rate. In the case in the future, if the need arises to raise the rate due to an unexpected emergency, with the permission of the parliament, the Government will be permitted to do so and hence the fixed tax rate was ruled out.
21. June 2016: The draft model of GST was released to the public for their views and suggestions.
22. August 2016: After making four changes to the bill, the opposition accepted the Government’s proposal, and it was passed in Rajya Sabha.
23. September 2016: The Constitution Amendment Bill received consent from the Honorable President of India and was made into an Act.
24. 2017: The following four bills were introduced:
1. Central Goods and Services Tax Bill
2. Integrated Goods and Service Tax Bill
3. Union Territory Goods and Service Tax Bill
4. State Goods and Service Tax Bill
These bills were brought to action on 1st July 2017.
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Why did the need for GST arise in India?
Earlier India was known for its complicated tax system, which made it very difficult for aspiring entrepreneurs or businessmen to start their businesses and contribute to the national economy. For example: Let us assume there is a businessman who is trying to import pulses. Let us assume the pulses arrive at Mumbai docks, and they need to be further transported to Delhi via roads.
So, the pulses need to travel from the state of Maharashtra through Gujarat and Rajasthan to reach Delhi. Prior to the introduction of GST, the businessmen would have had to pay import taxes at the dock to the central government. Following that, they would have had to pay octroi taxes at every junction of state it passes through. Adding to it, they would have had to pay central sales tax.
This multi-stage taxation system acted as a hindrance to the growth of any enterprise owing to its complicated nature. Hence, the concept of ‘One nation, one tax’ arise that gave birth to Goods and Service Tax famously known as GST.
We will now look into the various aspects of GST.
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What all goods are exempted from GST?
• All Edible products such as milk, fruits, meat and fish, pulses, vegetables, sugar, and various other small items like saffron, tea leaves, chilies, etc.
• Raw materials including jute, wool, cotton, charcoal, silk, and firewood.
• Tools and instruments including agricultural equipment, hearing aid devices, handmade musical instruments, and tools used by differently-abled people
• Also, miscellaneous goods like crude petroleum, motor spirit, diesel, aviation, and natural gas are not taxed.
• Means of transport for individuals such as public transport, buses, railways, auto-rickshaws, etc.
• Exportation of agricultural produce and goods are also exempted from this.
• Transportation of goods where the total charge is less than Rs 1500.
• Services provided to the Government and foreign diplomats including that of the United Nations are exempt from taxation.
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Different types of GST
GST is divided into 4 categories.
1.Integrated Goods and Service Tax or IGST
IGST also known as Integrated goods and service tax is a tax that is levied on any inter-state supply of goods and/or services as well as on imports and exports. The IGST act governs the IGST. Under this category, the collected amount of tax goes to the Central Government.
For example: If a seller of a particular good operates from Tamil Nadu and someone living in Gujarat wants to purchase goods from him, then IGST will be applicable as the purchase is happening between two states. If the amount of the goods is Rs 4000 and the rate of GST charged is 18%, then the buyer will have to pay a sum of Rs.4900 for the goods, out of which 900 is the IGST and will be going to the central government.
2. State goods and service Tax or SGST
The State goods and services tax or SGST is a tax levied on any transactions and purchases happening within a state. The SGST is governed by the SGST Act. According to this Act, the SGST tax is solely claimed by the specific state government.
For example, when a trader from Tamil Nadu sells goods to a customer residing in Tamil Nadu itself worth Rs.4000, then the GST applicable on the transaction will be partly CGST and partly SGST. If the GST rate charge is 18%, it will be separated equally into 9% CGST and 9% SGST. The total amount to be charged by the trader, in this case, will be Rs.4,900. The tax will be included in the amount paid by the buyer, and it will be the seller’s duty to pay this GST to the state government.
3. Central goods and Services Tax or CGST
CGST is very similar to SGST. CGST or the Central Goods and Service Tax is a type of tax levied on transactions happening within the same state The CGST is governed by the CGST Act. The Central Government receives all the revenue generated through CGST.
As discussed in the above example-If a seller in Tamil Nadu has sold some particular amount of goods worth Rs.4000 to a person living in Tamil Nadu only, and the rate of GST applicable on it is 18% then this GST will be divided in equal proportions in the form of 9% SGST and 9% CGST. Thus, the total amount payable by the consumer will be Rs.4900, and out of this Rs.450 will go to the central government in the form of CGST. The tax will be included in the amount paid by the buyer, and it will be the seller’s duty to pay this GST to the state government.
4. Union Territory Goods and Services Tax
The Union Territory Goods and Service Tax or UTGST is the equivalent of State Goods and Service Tax (SGST). The Union Territory Goods and Services Tax is a type of tax levied on any goods and services that are being purchased or sold in the Union Territories of India.
For any transaction occurring in Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra, and Nagar Haveli, and Lakshadweep UTGST is applicable. The UTGST is governed by the UTGST act, and all the revenue collected through UTGST goes to the Union Territory Government.
Advantages of GST
GST was implemented as a strategic tax to improve our country’s economic status. Its main motive was to simplify the taxation system, abolishing the obsolete taxes and increase the tax revenue for our country.
One major advantage is the 20% drop in interstate travel time as all the interstate check posts are now dispersed. According to reports, it also has positive implications for the transportation sector as crude consumption and delivery time have been reduced.
Let us look into those advantages one by one.
1. Rise of a common market throughout the country.
During the Pre-GST period, there were multiple taxes of every state, with different rates of charges in every state. The local self-government also exercised autonomy in taxation. Every individual state had its own taxes such as Value Added Taxes, Service Tax, Customs Tax, Excise Duty, Central Service Tax, etc.
These incongruous taxes which were decided upon by the state governments benefited the governments but caused the value of the same products to vary across states, and in turn, this affected our economy as a whole.
But as GST was introduced, one single and uniform tax was levied across the country. The GST itself has an overlooking authority – the GST Council, which is headed by the Union Finance Minister, and state is its members. As states are involved as members, they have active participation in deciding the rates and also the taxation policy.
Now since the rates are uniform, this encourages young entrepreneurs as well as businessmen to expand their horizons to different states.
2. Reducing the negative effects of Cascading taxes
Previously the goods were taxed at every stage of their production. Right from the procurement of raw materials, manufacturing to the end product, taxes were levied. This caused the successive tax to be taxed upon the cumulative price formed due to the preceding taxes.
As a result, the consumer of the final product had to pay the sum of multiple taxes. This is termed as Cascading of taxes or the Tax-on-tax effect. GST helps in reducing the cascading taxes as GST is charged at the same rate throughout the process.
3. Increased the Limit of Exemption for Small Traders or Service Providers
`The following were the agreed-upon threshold limits during the pre-GST period.
For Excise Tax – If manufacturers had an annual turnover greater than Rs 1.5 Crore, then they had to register for Excise tax.
Service Tax – If Service providers had an annual turnover of Rs. 10 lakhs and above, then they had to register for service tax.
Value Added Tax – This was different for different states.
After the introduction to GST and after the 32nd GST council meeting, the limit of exemption for goods suppliers was increased to 40 lakhs. Hilly and Northeastern states were given a choice to select either 20 lakhs or 40 lakhs as their turnover limit of exemption of taxes.
4. Benefits to small businesses
Composition Scheme was included under GST so that government can encourage tax compliances by reducing taxes. Following tax rates were included under GST:
Small businesses will have to file the one tax return and pay a tax at a flat rate of 1% for the turnover of Rs. 1.50 crores.
Small service providers will have to pay only 6% tax for an annual turnover of Rs. 50 Lakhs
Drawbacks of GST
1. Operational costs for businesses increased due to the required software purchase as well as hiring and training the personnel in handling the GST filing process.
2. Robust IT framework is the backbone of any operation. However, there are many instances when the GST portal glitches have caused the delay in filing and have caused misreporting, leading to hefty penalties.
3. Due to GST the costs in the financial sector have gone up because the ROI has gone up from 15% to 17%
4. GST also taxes commodities such as Braille Paper, wheelchairs, hearing devices, etc.
5. Insurance Premiums have gone up
6. Petrol, Natural gas are exempted commodities, which causes difficulty in keeping track of their prices.
GST was one of the biggest reforms brought in the Indian taxation structure after years of planning and drafting. While the GST intends to bring in a single unified tax structure and let everyone benefit from it, it is understandable that implementing such a big concept, in reality, will not be a smooth and hassle-free thing to happen readily at once and that there are bound to be various loopholes when it comes to real-life situations.
Keeping this in mind, the government and the GST Council have been proactively responding and constantly updating the structure based on people’s suggestions. This process of refinement will help in creating a tailored, yet simpler taxation system that will help our nation to improve its economic stability.