The implementation of the Goods and Services Tax (GST) in India was a
historical move, as it marked a diverse change in indirect tax system in the
country. The amalgamation of a large number of taxes (levied at a central and
state level) into a single tax is expected to have big advantages. One of the
most important benefits of the move is the eradication of double taxation or the
elimination of the cascading effect of taxation. Indian goods are also expected
to be more competitive in international and domestic markets post GST implementation.
The history of the Goods and Services Tax (GST) in India dates back to the year
2000 and culminate in 2017 with four bills relating to it becoming an Act.
History of GST in India
2000: In India, the idea of adopting GST was first suggested by the Atal Bihari
Vajpayee Government in 2000. The state finance ministers formed an Empowered
Committee (EC) to create a structure for GST, based on their experience in
designing State VAT. Representatives from the Centre and states were requested
to examine various aspects of the GST proposal and create reports on the
thresholds, exemptions, taxation of inter-state supplies, and taxation of
services. The committee was headed by Asim Dasgupta, the finance minister of
2004: A task force that was headed by Vijay L. Kelkar the advisor to the finance
ministry indicated that the existing tax structure had many issues that would be
mitigated by the GST system.
February 2005: The finance minister, P. Chidambaram, said that the
medium-to-long term goal of the government was to implement a uniform GST
structure across the country, covering the whole production-distribution chain.
This was discussed in the budget session for the financial year 2005-06.
February 2006: The finance minister set 1 April 2010 as the GST introduction
February 2007: The 1 April 2010 deadline for GST implementation was retained in
the union budget for 2007-08.
February 2008: At the union budget session for 2008-09, the finance minister
confirmed that considerable progress was being made in the preparation of the
roadmap for GST. The targeted timeline for the implementation was confirmed to
be 1 April 2010.
July 2009: Pranab Mukherjee, the new finance minister of India, announced the
basic skeleton of the GST system. The 1 April 2010 deadline was being followed
then as well.
November 2009: The EC that was headed by Asim Dasgupta put forth the First
Discussion Paper (FDP), describing the proposed GST regime. The paper was
expected to start a debate that would generate further inputs from stakeholders.
March 2011: The government led by the Congress party puts forth the Constitution
(115th Amendment) Bill for the introduction of GST. Following protest by the
opposition party, the Bill was sent to a standing committee for a detailed
June 2012: The standing committee starts discussion on the Bill. Opposition
parties raise concerns over the 279B clause that offers additional powers to the
Center over the GST dispute authority.
November 2012: P. Chidambaram and the finance ministers of states hold meetings
and set the deadline for resolution of issues as 31 December 2012.
February 2013: The finance minister, during the budget session, announces that
the government will provide Rs.9000 crore as compensation to states. He also
appeals to the state finance ministers to work in association with the
government for the implementation of the indirect tax reform.
August 2013: The report created by the standing committee is submitted to the
parliament. The panel approves the regulation with few amendments to the
provisions for the tax structure and the mechanism of resolution.
October 2013: The state of Gujarat opposes the Bill, as it would have to bear a
loss of Rs.14000 crore per annum, owing to the destination-based taxation rule.
May 2014: The Constitution Amendment Bill lapses. This is the same year that
Narendra Modi was voted into power at the Center.
December 2014: India’s new finance minister, Arun Jaitley, submits the
Constitution (122nd Amendment) Bill, 2014 in the parliament. The opposition
demanded that the Bill be sent for discussion to the standing committee.
February 2015: Jaitley, in his budget speech, indicated that the government is
looking to implement the GST system by 1 April 2016.
May 2015: The Lok Sabha passes the Constitution Amendment Bill.
August 2015: The Bill is not passed in the Rajya Sabha. Jaitley mentions that
the disruption had no specific cause.
March 2016: Jaitley says that he is in agreement with the Congress’s demand for
the GST rate not to be set above 18%. But he is not inclined to fix the rate at
18%. In the future if the Government, in an unforeseen emergency, is required to
raise the tax rate, it would have to take the permission of the parliament. So,
a fixed rate of tax is ruled out.
June 2016: The Ministry of Finance releases the draft model law on GST to the
public, expecting suggestions and views.
August 2016: The Congress-led opposition finally agrees to the Government’s
proposal on the four broad amendments to the Bill. The Bill was passed in the
September 2016: The Honorable President of India gives his consent for the
Constitution Amendment Bill to become an Act.
2017: Four Bills related to GST become Act, following approval in the parliament
and the President’s assent:
Central GST Bill
Integrated GST Bill
Union Territory GST Bill
GST (Compensation to States) Bill
# The GST Council also finalized on the GST rates and GST rules. The Government
declares that the GST Bill will be applicable from 1 July 2017.
Advantages of GST Advantages for the government:
Will help to create a unified common national market for India, giving a boost
to foreign investment and “Make in India” campaign;
Will mitigate cascading of taxes as Input Tax Credit will be available across
goods and services at every stage of supply;
Harmonization of laws, procedures and rates of tax between Center and States and
Improved environment for compliance as all returns are to be filed online, input
credits to be verified online, encouraging more paper trail of transactions at
each level of supply chain;
Similar uniform SGST and IGST rates will reduce the incentive for evasion by
eliminating rate arbitrage between neighboring States and that between intra and
Common procedures for registration of taxpayers, refund of taxes, uniform
formats of tax return, common tax base, common system of classification of goods
and services will lend greater certainty to taxation system;
Greater use of IT will reduce human interface between the taxpayer and the tax
administration, which will go a long way in reducing corruption.
Advantages of GST to the Trade/Industry:
Single tax system would subsume multiple taxes.
For instance, the direct-to-home (DTH), film producers and multiplex players
will be saved from levy of multiple taxes such as high rates of service tax and
entertainment tax. It may also lower the average ticket price, and increase the
footfalls in multiplexes;
This single tax system would solve the issue of cascading/double taxation;
This system would help to create a single unified national market;
The one nation one tax system would facilitate companies to generate savings in
logistics and distribution costs as there would be free movement and supply of
goods in every part of the country without the need to depend on multiple sales
depots across the country.
For instance, companies manufacturing mobile handsets may no longer need to set
up and invest in specific entities and warehouses state-wise and transfer goods
and stocks to them. This will not only yield ease of doing business for the
companies, but also reduce the handset prices across the states. Manufacturers
may also pass on the cost benefits, to the consumers, which they would get from
consolidating their warehouses and efficiently managing inventory.
The tax transparency and ease of doing business, as resulted from the
implementation of GST, is expected to lead to increased tax compliance and
attract more foreign direct investments across sectors.
This simpler tax regime will levy fewer rates of tax and allow fewer cases of
Disadvantages of GST
# Petroleum Products Undefined Under GST
Petroleum products have not been defined under the GST which means the states
will continue levying their taxes and no input tax credit will be available in
this industry and the related ones.
# Implementation of GST in the Mid-Year
GST will roll out on July 1 which means for the new financial year starting from
April 1, old tax structure will be carried out and as soon as GST is
implemented, new structure would be enforced. This would create confusion as the
change would not take place in a day and two systems (old and new) would be
running parallel for a while.
# Inevitable Inflation
In many sectors, GST would result in inflation and there have been no measures
to curb the same. While there were steps taken to initiate anti-profiteering at
retail level, there have been no concrete steps as such.
# Operating Cost Hike
For smaller enterprises that do not hire professionals to manage accounts and
taxes, the new system would compel them to require professional assistance as
the structure would be completely new.
# Business Software Updating
Businesses, up till now have been using accounting software with VAT, Service
tax incorporated in it but as the reform would take place, these software would
need to be updated and that means extra cost of purchasing software and training
# Multiple Registration
For a business, GST requires to be registered in as many states in which the
business is operating and that means multiple registration leading to compliance
Once the GST gets implemented, these challenges would follow it for a long time
but as the benefits of GST are sure to bind India into one tax, the end result
is hoped to be positive.
GST Analysis And Impact
GST has brought in ‘one nation one tax’ system, but its effect on various
industries is slightly different. The first level of differentiation will come
in depending on whether the industry deals with manufacturing, distributing and
retailing or is providing a service.
GST is to boost competitiveness and performance in India’s manufacturing sector.
Declining exports and high infrastructure spending are just some of the concerns
of this sector. Multiple indirect taxes had also increased the administrative
costs for manufacturers and distributors and with GST in place, the compliance
burden has eased and this sector will grow more strongly.
But due to GST business which was not under the tax bracket previously will now
have to register. This will lead to lesser tax evasion.
Sector-wise Impact AnalysisLogistics
In a vast country like India, the logistics sector forms the backbone of the
economy. We can fairly assume that a well organized and mature logistics
industry has the potential to leapfrog the “Make in India” initiative of the
Government of India to its desired position.
The E-commerce sector in India has been growing by leaps and bounds. In many
ways, GST will help the e-com sector’s continued growth but the long-term
effects will be particularly interesting because the GST law specifically
proposes a Tax Collection at Source (TCS) mechanism, which e-com companies are
not too happy with. The current rate of TCS is at 1%.
On the whole, GST is benefiting the pharmacy and healthcare industries. It will
create a level playing field for generic drug makers, boost medical tourism and
simplify the tax structure. If there is any concern whatsoever, then it relates
to the pricing structure (as per latest news). The pharmacy sector is hoping for
a tax respite as it will make affordable healthcare easier to access by all.
In the telecom sector, prices will come down after GST. Manufacturers will save
on costs through efficient management of inventory and by consolidating their
warehouses. Handset manufacturers will find it easier to sell their equipment as
GST has negated the need to set up state-specific entities, and transfer stocks.
The will also save up on logistics costs.
The Indian textile industry provides employment to a large number of skilled and
unskilled workers in the country. It contributes about 10% of the total annual
export, and this value is likely to increase under GST. GST would affect the
cotton value chain of the textile industry which is chosen by most small medium
enterprises as it previously attracted zero central excise duty (under optional
The real estate sector is one of the most pivotal sectors of the Indian economy,
playing an important role in employment generation in India. The impact of GST
on the real estate sector cannot be fully assessed as it largely depends on the
tax rates. However, the sector will see substantial benefits from GST
implementation, as it has brought to the industry much-required transparency and
The agricultural sector is the largest contributing sector the overall Indian
GDP. It covers around 16% of Indian GDP. One of the major issues faced by the
agricultural sector is the transportation of agriculture-products across state
lines all over India. GST will resolve the issue of transportation.
The FMCG sector is experiencing significant savings in logistics and
distribution costs as the GST has eliminated the need for multiple sales
Freelancing in India is still a nascent industry and the rules and regulations
for this chaotic industry are still up in the air. But with GST, it will become
much easier for freelancers to file their taxes as they can easily do it online.
They are taxed as service providers, and the new tax structure has brought about
coherence and accountability in this sector.
The automobile industry in India is a vast business producing a large number of
cars annually, fueled mostly by the huge population of the country. Under the
previous tax system, there were several taxes applicable to this sector like
excise, VAT, sales tax, road tax, motor vehicle tax, registration duty which
will be subsumed by GST.
With increased limits for registration, a DIY compliance model, tax credit on
purchases, and a free flow of goods and services, the GST regime truly augurs
well for the Indian startup scene. Previously, many Indian states had different
VAT laws which were confusing for companies that have a pan-India presence,
especially the e-com sector. All of this has changed under GST.
Goods and Service Tax, with end-to-end it has tried to enable a tax mechanism,
which is likely to bring more revenue to the government. It is expected that the
activity of tax theft will go away under Goods and Service Tax regime in order
to benefit both governments as well as the consumer. In reality, that extra
revenue that the government is expecting to generate won’t come from the
consumers pocket but from the reduction of tax theft which will benefit in
Student’s guide to GST and Customs Law, Author: Dr. Vinod K. Singhania
Taxman’s Indirect Tax Laws and Practice, Author: V.S. Datey
Study Material of Indirect Taxation of The Institute of Chartered
Accountants of India
The Journal of Taxation and Regulatory Frameworks