The Evolution of Goods and Services Tax in India: A Historical Overview

The Goods and Services Tax (GST) represents a unified tax system applied to goods and services, spanning from production to final consumption. It replaced various indirect taxes previously in effect. India's adoption of GST marked one of the most significant indirect tax reforms in the nation's recent history.

When was the Goods and Services Tax Implemented in India?

The concept of GST originated in France in 1954, subsequently being adopted by over 160 countries globally. Malaysia was among the most recent nations to implement a value-based tax system, GST, in 2015. In India, GST was initially introduced in 2017, establishing a dual tax structure.

Key Figures Behind India's GST Introduction

In 2014, then-Finance Minister Mr. Arun Jaitley presented the Constitution Amendment Bill in Parliament. By May 2015, the Lok Sabha passed the Constitution (122nd Amendment) Bill. Subsequently, the Integrated GST Bill, 2017, the Union Territory GST Bill, 2017, the Central GST Bill, 2017, and the GST (Compensation to States) Bill, 2017, all received approval from both the Lok Sabha and the Rajya Sabha by April 20, 2017. The official rollout of GST occurred on July 1, 2017.

A Brief History of India's GST Legislation

The journey towards GST in India began over two decades ago, with initial discussions occurring in 2000 during the Atal Bihari Vajpayee government's tenure. An empowered committee comprising state finance ministers was formed, leveraging their experience with State VAT. The Fiscal Responsibility and Budget Management Committee, established in 2004, later recommended the introduction of GST.

During the 2006-07 Budget Speech, the then Union Finance Minister announced a target implementation date of April 1, 2010. However, due to various reasons, the introduction was postponed. The Constitution (115th Amendment) Bill, 2011, aimed at incorporating specific GST provisions, was introduced in Parliament and thoroughly reviewed by a Standing Committee. This Bill ultimately lapsed with the dissolution of the Lok Sabha in 2014, necessitating a new Constitutional Amendment Bill.

Key Milestones in GST's Evolution and Timeline

• 2000: An Empowered Committee consisting of State Finance Ministers is established.
• 2006: Finance Minister P. Chidambaram declares GST implementation scheduled for April 1, 2010.
• 2009: The Empowered Committee of State Finance Ministers releases the initial discussion paper on GST in India.
• 2010: President Pranab Mukherjee announces a delay in GST introduction, proposing April 2011 as the new target.
• 2011:
  • The Constitution (115th Amendment) Bill, focusing on GST introduction, is presented in the Lok Sabha.
  • The Lok Sabha refers the Bill to the Standing Committee on Finance for comprehensive examination.
• 2013: The Standing Committee on Finance submits its report on the Constitution (115th Amendment) Bill.
• 2014:
  • The Lok Sabha's dissolution causes the Bill to lapse.
  • A new Constitution (122nd Amendment) Bill, dedicated to GST introduction, is presented in the Lok Sabha.
• 2015:
  • The Bill is passed by the Lok Sabha and then referred to a Rajya Sabha Select Committee.
  • The Select Committee presents its report.
  • A committee led by the Chief Economic Advisor submits a report outlining potential GST rates.
• 2016:
  • Both the Lok Sabha and Rajya Sabha pass the Bill, which is subsequently notified as the Constitution (101st Amendment) Bill.
  • Assam becomes the first state to ratify the Bill.
  • President Pranab Mukherjee grants assent to the Bill.
  • The Union Cabinet approves the formation of the GST Council, leading to its first meeting in New Delhi.
• 2017:
  • The CGST Bill, IGST Bill, UTGST Bill, and GST (Compensation to States) Bill are introduced in the Lok Sabha.
  • These Bills are passed by both Houses, and the respective GST Acts are notified.
  • The GST Council announces GST rates and cess for various goods and services.
  • GST officially rolls out on July 1.
• 2018:
  • TDS provisions are introduced, along with the requirement to file GSTR-7.
  • The e-way bill system is implemented for the inter-state movement of goods.
• 2019:
  • The reverse charge mechanism becomes applicable.
  • Restrictions on claiming Input Tax Credit (ITC) under Section 36(4) are introduced.
• 2020:
  • Voluntary e-invoicing is introduced.
  • The Quarterly Return Monthly Payment (QRMP) scheme is launched.
  • Tax relief is provided to taxpayers in June due to the COVID-19 pandemic.
• 2021:
  • GSTR-8 and GST on services provided by restaurants via e-commerce operators are introduced.
  • GST is applied to services supplied by State Governments to their undertakings or PSUs as loan guarantees.

Pre-GST Taxation System

Before the implementation of GST, India's major taxes included:

• VAT (State Level Tax): Value Added Tax was an indirect tax applied to goods and services sold within a state. Output VAT was charged on sales, while Input VAT could be claimed as a tax credit for VAT paid on business purchases.
• Excise Duty: This duty was levied by the Central Government on products manufactured domestically within the country and was also known as CENVAT (Central Value Added Tax).
• Customs Duty: A tax imposed on international transactions, specifically imports and exports. The purpose of customs duty was to protect domestic products and regulate goods movement.
• Central Sales Tax: An indirect tax imposed by the central government on the sale or purchase of goods at an inter-state level.
• Service Tax: This tax was levied on service providers for the services they rendered (excluding those on a negative list). Although imposed on providers, customers typically paid this tax when availing the service.

Post-GST Changes in the Indian Tax Landscape

• GST focuses on the "supply" of goods and services, unlike previous taxes that also applied to the manufacturing process. As a supply-centric tax, it is considered a destination-based tax.
• It replaced numerous taxes, including:
  • Service Tax
  • Central Excise Duty
  • Additional Excise Duties
  • Special Additional Customs Duty
  • Additional Customs Duties
  • Other cesses and surcharges
• GST also subsumed the following taxes:
  • Central Sales Tax
  • Value Added Tax (VAT)
  • Luxury Tax
  • Purchase Tax
  • Entertainment Tax (excluding those levied by local bodies)
  • Taxes on lottery, gambling, and advertisements
  • Entry Tax
• Embodying the "one nation, one tax" principle, GST has significantly reduced the cascading effect of taxes.
• New GST registrations are mandatory for every state where a business operates branches or intends to make outward supplies.
• The primary components of GST are:
  • CGST: Central GST
  • SGST: State GST
  • IGST: Integrated GST
• Section 9 (4) addresses the Reverse Charge Mechanism, a distinct feature of GST, where a person purchasing goods from an unregistered dealer becomes liable to pay GST.
• Section 9 (5) pertains to GST levied on services supplied by restaurants through e-commerce operators.
• Sections 51 and 52 of the GST Act outline the authority and procedure for the Tax Deducted at Source (TDS) mechanism under GST.
• The e-way bill system was introduced to monitor inter-state goods movement, mandatory for goods valued over Rs. 50,000.
• The implementation of e-invoicing is a crucial measure to combat tax evasion.
• GST operates as a digital tax, with returns and related information filed and supporting documents submitted via a web portal, facilitating easy transaction tracking.