The Evolution of GST in India

Abstract

India's route towards eventually instituting a countrywide GST regime has been fairly arduous. In spite of numerous political and legal approvals and rejections, the GST tax system was finally implemented in India on 1 July 2017 under the rights conferred by the 101st Constitutional Amendment Act 2017 promulgated by the Government of India under the leadership of the Honorable Prime Minister, Narendra Modi. The enactment of the so-called "GST Law" was motivated by the political and bureaucratic moves need to prevent double taxing and tax on tax. In other words, the GST system seeks to provide a uniform and equitable tax policy across the nation.[1] The era of GST regime was introduced to improve tax buoyancy as the interlinking of input and output taxes will minimise leakages into a seamless national market. The primary objective behind development of GST is to subsume all sorts of indirect taxes in India like Central Excise Tax, VAT/Sales Tax, Service tax, etc. and implement one taxation system in India. The GST based taxation system brings more transparency in taxation system and increases GDP rate from 1% to 2% and reduces tax theft and corruption in country.[2]

Introduction

·?????Constitutional Framework of Indian Tax System

The taxation system is based on the principle of separation in tax powers between the Central and State governments. Articles 268 to 300 of the Indian Constitution exclusively deals with the financial matters. Article 246 of the Constitution stipulates that Parliament has the exclusive authority to legislate on any topic listed in Union List (List I of schedule VII). Both Parliament and state legislatures have the authority to legislate on the Concurrent List (List III of schedule VII). The State List (List II of schedule VII) enumerates the subjects over which the states have exclusive legislative authority (List III of schedule VII). Article 265 of the Indian constitution plainly stipulates that no taxes may be charged or collected without the permission of the law. Entries 82 to 92B of List I of the VII Schedule outline the federal government's taxing authority. The entries 45 through 63 of List II of the VII Schedule outline the taxation authority of state governments. List III has no taxation heads, which indicates the Union and the states have no concurrent taxing authorities. This clause was included in the Constitution to prevent redundancy in tax administration and reduce tax competition between the Union and the States, as well as among the States.[3]

Due to the improper price of public goods on the market, only taxes can finance them. It can only be imposed by the government, utilizing tax revenue. It is crucial that the taxation system is established in such a way that it does not cause market distortions or economic failures. The taxation law should be very competitive in order to maximize the efficiency and effectiveness of revenue collection. Good and Service Tax is a single, vast, and broad tax applied at each and every point on the sale of goods and services, but the ultimate tax will be borne by only the end consumer, as charged by the last seller or service provider in the supply chain. The implementation of the Goods & Services Tax (GST) subsumed a total of 17 taxes and 22 cess levied on both goods and services and borne by the ultimate consumer. The current tax rates for the Goods and Services Tax (GST) are 5 percent, 12 percent, 18 percent, and 28 percent. In addition, there are two cesses of 0% and 28%, the latter of which is collected on luxury products, alcohol, pan masala, etc. To make the Goods and Services Tax (GST) more systematic and acceptable, India has added two extra digits to the HSN Number to make the HSN code more exact.[4] The HSN code, also known as the "Harmonized Commodity Description and Coding Systems," is a harmonized nomenclature system for the systematic computation of all items in the world. It provides all items with systematic classification and worldwide recognition.

·?????Evolution of Tax System in India

Since independence, there have been several reforms to the taxation system. In its 1974 report, the LK Jha Committee proposed the introduction of VAT into the tax system for the first time. In 1986, VAT is introduced in the form of (Modified Value Added Tax) MODVAT, also known as the (Central Value Added Tax) CENVAT. In 1991, the Chelliah Committee issued a report recommending the simplification and integration of VAT. In 1994, Service Tax of 5% is introduced. In 1999, a new State VAT committee is established. In 2000, the Aseem Das Gupta-led committee for establishing a unified tax rate and GST concept was established.

In April 2003, VAT was imposed in Haryana. The Kelkar Taskforce proposed GST in 2004. According to the Kelkar Taskforce, a single indirect tax for all of India is the most significant change to the tax regime since India's independence, as it combines numerous indirect taxes and cess levied by both the Centre and the State into the Goods and Services Tax (GST), a single indirect tax for a single country. Significant progress was made towards CENVAT in 2004, and 26 additional states-imposed VAT in 2005-06.[5] In 2007, Finance Minister P. Chidambaram recommended the implementation of GST in April 2010. In November 2009, the committee presented the proposed GST regime in its first discussion paper on GST. In 2011, a committee proposed the GST model and the 115h Constitutional Amendment Bill was filed for the implementation of GST. The Rajya Sabha introduced the bill to the Parliamentary Standing Committee in 2013. The measure, following all improvements, was passed by the Parliament as the 122nd?amendment to the constitution on December 19, 2014.[6] On July 1, 2017, the Goods and Services Tax was implemented in India under the authority promulgated through the 101 Constitutional Amendment Act 2017 by the Government of India under the leadership of Hon. Prime Minister, Narendra Modi. In accordance with this framework, the tax will be managed by both the Central and State Governments. Statewide sales and purchases are controlled by both the Central Goods and Services Tax (CGST) and State GST (SGST). The Central Government imposes a separate Inter-State Products and Services Tax (IGST) on all interstate transactions, including the import and export of goods.[7]

Analysis

The implementation of GST in India is 'Dual' in nature; one is levied by the Centre and is known as Central Goods and Service Tax (CGST); another is levied by the States and is known as State Goods and Service Tax (SGST); and the third is levied by the Union Territories and is known as Union Territory Goods and Service Tax (UTGST) (UTGST). However, the tax rate remains unchanged. When the same tax rate is applied to both products and services, no distinctions are made. As a result of the GST's multi-tiered tax structure, the final burden will be borne by consumers. Under the GST Act, the Parliament is fully responsible for compensating all States for losses if the central government fails to minimize losses generated by the GST. Consequently, the legislature should cover the losses incurred by different States as a result of the errors committed by the executive.[8]

Impact

The GST would make the tax regime more transparent, and also remove the cascading effect of taxes making a wider availability of Input Tax Credit. It shall also remove the double ladder taxes impose on different products at different rates by the Centre and the State. The unorganized sector has been regularized as the GST Act helped in streamlining the system of online compliances and payments.[9] It?has contributed to the expansion of India's tax base. Historically, each tax law had a separate threshold for registration based on annual revenue. As?GST is a combined tax applied on both goods and services, it has expanded the number of businesses with tax registration. In addition, stricter legislation regarding input tax credits have assisted in bringing certain unorganized industries into the tax net. For example, the Indian construction sector. Having consistent GST rates has contributed to India's and the world's overall competitive pricing. This has led to a rise in consumption and revenue, so achieving another crucial purpose.[10]

Conclusion

In its early stages, the Goods and Services Tax (GST) had a positive impact on the economy, and it continues. However, the future effects of the GST are uncertain. The GST is an improved version of the earlier tax system that overcame the obstacles of the VAT framework. It also helps to boost export products' worldwide market rivalry, which may result in a larger GDP and income. The successful and efficient design of the Goods and Services Tax (GST) involves the efforts of the central government, the states, industries, and consumers, which will also enhance the tax base for both the central government and the states, as well as boost tax regime compliance. The electronic method for payments, refunds, and tax returns will eliminate both tax evasion and corruption. Educating the officers on GST through various training, workshops, and seminars is a critical step for the successful and efficient execution of the tax.[11]

[1] Mihir Shyam Asolekar, The Dynamics of Centre-State Relationship under GST Regime: A Case Study on One-Nation One-Tax in India, 4 INT'l J.L. MGMT. & HUMAN. 1833 (2021), https://home.heinonline.org/.

[2] M V Maruthi, A Comprehensive Analysis of Goods and Services Tax (GST) in India, DIGITAL COMMONS (Jul. 2020), https://digitalcommons.du.edu/cgi/viewcontent.cgi?article=1228&context=irbe.

[3] Priyam Jinger & Eshaan Bansal, Understanding the Goods and Services Tax (GST): Indian Context, 14 Supremo Amicus 191 (2019), https://home.heinonline.org/.

[4] Dr. N. Thyagaraju, Impact of Economic Reforms on GST in India-An Analysis (With Reference to Manufacturers, Distributor and Retailers, WORLD WIDE JOURNALS (Jan. 2020), https://www.worldwidejournals.com/global-journal-for-research-analysis-GJRA/recent_issues_pdf/2020/January/impact-of-economic-reforms-on-gst-in-india-an-analysis-with-reference-to-manufacturers-distributor-and-retailers_January_2020_1578654412_5205549.pdf.

[5] Learn all about the GST bill, BAJAJ FINSERV (Jan. 05, 2021), https://www.bajajfinserv.in/insights/gst.

[6] Introduction to Goods and Services Tax (GST), TAXMANN, https://www.taxmann.com/bookstore/bookshop/bookfiles/nitibhasinchapter2.pdf.

[7] GST, History of GST, Background of GST, history of GST worldwide 2021, CAKNOWLEDGE (Oct. 11, 2021), https://caknowledge.com/historical-background-gst/.

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[8] Mihir Shyam Asolekar, The Dynamics of Centre-State Relationship under GST Regime: A Case Study on One-Nation One-Tax in India, 4 INT'l J.L. MGMT. & HUMAN. 1833 (2021) https://home.heinonline.org/.

[9] Duke Melvin Ebinesar J. A., A Critical Analysis on Indian Economic Crisis and Its Impact in Implementing Policy, 3 INT'l J.L. MGMT. & HUMAN. 625 (2020), https://home.heinonline.org/.

[10] Goods & Services Tax GST (India) What is GST? Indirect Tax Law Explained, CLEARTAX (Jan. 11, 2022), https://cleartax.in/s/gst-law-goods-and-services-tax.

[11] Shubham Maheshwari, A Comprehensive Analysis on Good and Service Tax, 4 INT'l J.L. MGMT. & HUMAN. 2001 (2021), https://home.heinonline.org/.?