In a historic move, the government of India passed the Goods and Services taxes bill on 1st July 2017. It replaced multiple existing taxes imposed by state and central governments. GST in India was needed for quite some time. The first announcement of the bill was made in the 2006-2007 budget by then Union Minister. What is the GST bill, and how it will change the economy was a big question across many sections of the businessmen and taxpayers. There were many discussions in and outside of parliament about the implementation and effects of Good and Services Tax. Introducing GST meant changes to the whole tax system, and this has remained a point of discussion in parliament for a long time. After many discussions, the bill was passed in April 2017.
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Chronology of how GST became a reality:
- The first announcement about GST was made in parliament by Union minister during the 2006-2007 budget, and it was expressed that the Act will be introduced on 1st April 2010.
- The empowered committee released the first discussion paper in 2009.
- In 2011, the 115th Amendment bill was introduced and later lapsed.
- The 122nd Amendment bill was introduced in LokSabha in 2014.
- One Hundred and First Amendment Act was enacted in August 2016.
- The first GST council was conducted in September 2016.
- CGST, IGST, SGST, UTGST, and compensation Cess Act were recommended by the GST Council.
- CGST, IGST, SGST, UTGST, and Compensation Cess were passed in April 2017.
- GST law, Goods and Services Tax was launched all over India on 1st July 2017.
- A few days later, on 7th July 2017, Jammu & Kashmir state legislature passed its GST.
It took almost a decade for Goods and Services Tax to become a reality, and it was received with mixed reactions. Initially, there was a lot of confusion about various aspects of the Act, and there was a mixed understanding taxpayer had about the Act. It received criticism as well as appreciation from different sections of citizens. With time, the advantages of GST became clear to the general public, and it has been much appreciated since then. There have been some changes that were made in the Act since its introduction, and it helped in creating a transparent, robust, and effective tax system.
Important changes and its benefits :
Before the introduction of GST, there were various taxes levied on goods and services across the nation. Traders who were supplying goods across states needed to pay various taxes to state governments. Delivery vehicles that were crossing state borders required to produce required documents along with registration number and VAT declaration. Failure to produce documents would lead to the confiscation of goods. GST removed this hassle for the supplier. A supplier can move goods from one state to another without any disturbance or stop. Travel time for vehicles supplying goods on an interstate level dropped by 20%.
Removal of the Cascading effect was one of the best changes GST made to the tax system. One of the biggest flaws of the previous tax system was the cascading effect. Cascading effect, also known as the Tax-on-Tax effect, was a tax imposed goods on an already taxed item on every stage of its supply until it reaches the consumer. This resulted in prices of Goods and Services rising exponentially. With the removal of the cascading effect, suppliers were required to pay taxes only on the value addition and not the value of the whole product. This made goods and services cheaper for the consumer.
Dealing with tax-related issues and filing taxes became much simpler because of the procedural changes that were made under GST. Bookkeeping became easy. Procedures for registrations changed significantly. A uniform E-Registration depending on the PAN of the entity was introduced. The format of filing taxes became better. A common tax base was established. Classification of Goods and Services was changed to accommodate a simpler system. Tax refunds became easy. Rules and regulations of taxes were made more transparent and clear.
One of the biggest changes from the old tax system to GST was the structure of taxes. Under the previous taxation system, The state taxes levied were WCT( Works contact tax), sales tax deducted at source, State VAT, luxury tax, entertainment tax, betting and lottery, tax on gambling, and surcharge and cesses. The central taxes were levied on custom and central excise duty, surcharge, and cesses and the central sales tax on goods and services. Under GST, all taxes, central and state, were subsumed under a single tax for all Goods and Services except petroleum, natural gas, motor spirit, and high-speed diesel. With the taxes being subsumed, it created great ease in doing business.
Few industries like textile and construction were largely unregulated under the previous tax regime. With GST, A rule was introduced where input tax credit can only be availed when the supplier has accepted the amount brought regulation and accountability to these industries. It curbed the black market. Helped in dealing with corruption and created transparency about the previously unregulated industries.
However, there were a few disadvantages for some taxpayers with the introduction of GST. As GST is an online taxation system, it is difficult for some taxpayers to get used to the new system. Not all people are comfortable with invoicing, making payments, and filing taxes online. A taxpayer needs to shell out extra money to maintain an employee to remain GST-compliant. Small businesses have been affected in a negative manner with this system to some extent.
It took time for taxpayers to fully understand what is the GST bill and the positive impact it can create for business and economy in the long run. Even after two years since its introduction, there have been debates about whether GST in India was a success or failure. An overall look at the new tax system shows that it dramatically transformed the tax system for good. The implementation, when it was first introduced in 2017, had its shortcomings, and there were some rapid changes that were made to accommodate the issues it created. After the modifications made to rules and regulations since its introduction has made the overall tax system better.