The process of tax reforms that started in India since 1991, aims to implement a uniform tax system on goods and services across the country, reducing the complexity of the tax system by making the taxation process smoother and simpler. Can go On the one hand, this will help in creating a better competitive business environment in India, on the other hand, it is also expected to increase the revenue of the government rapidly. In this context, the ‘Goods and Services Tax’ is a significant breakthrough in the direction of VAT (value added tax) towards reforming indirect taxes.
Goods and services tax is a unified indirect tax levied on goods and services, including central excise, state level VAT, octroi, purchasing tax, luxury tax, entertainment duty, service tax, etc. Goods and services tax will be levied at the last stage of supply and use. This tax will be compulsorily levied at each level of value addition. It allows any supplier at every stage to make up for it through the tax credit system. In this, the customer only has to pay the tax charged at the last stage of the supply chain. Goods and services related tax reform is said to be the biggest and far reaching tax reform to be done after independence.
Its background can be seen preparing in the budget for the year 2006-07, when the then Finance Minister P.V. Chidambaram had proposed to implement it from April 1, 2010, proposing it. In August 2009, a National Conference was held to discuss the Goods and Services Tax under the chairmanship of the 13th Finance Commission Chairman Shri Vijay Kelkar. In this meeting, Kelkar termed the cooperation and coordination between the Center and the State as a necessary condition in the implementation of the Goods and Services Tax and also advised the Central Government to adopt a sensitive attitude towards the concerns of the States on this issue.
The sequel to this visit connects in July 2010, when the then Finance Minister presented a three-year plan proposing a single rate on Goods and Services Tax. It also included the provision of compensation for the states. In March 2017, the government proposed the 115th Amendment Bill on Goods and Services Tax. Under this, a provision was made for the constitution of Goods and Services Tax Council under the chairmanship of the Union Finance Minister to establish better coordination between the Center and the State.
This council will be committed to the decision regarding tax rate, limit and tax losses. Along with this, provision of Goods and Services Tax Dispute Settlement Tribunal has also been made in this bill, which will work for settlement of disputes arising in this regard. It will be headed by a judge of the Supreme or High Court, but states were strongly opposed to this amendment, saying that the implementation of this amendment would adversely affect their revenue. Also, it will negatively affect their financial autonomy. States also objected to the decision of the central leadership in the Goods and Services Tax Council. As a result, this bill could not be passed.
In the year 2014, the government formed under the leadership of the Bharatiya Janata Party introduced the 122nd Amendment Bill on Goods and Services Tax in the winter session of the Lok Sabha. In this bill, serious efforts have been made to mitigate the objections raised by the states in the past. In the proposed bill, making a comprehensive provision to compensate for the possible loss to the states, it has been arranged that in case of implementation of the Goods and Services Tax, each state will be given 100% compensation for the first three years, while 75% more in the fourth year.
Revenue compensation of 50 percent will be provided for the fifth year. In this amended bill, a plan has been proposed to constitute Goods and Services Tax Council to generate better synergy between Center and States. It will consist of 2/3 member states and will require 75 percent votes for all decisions. Alcohol, which was an important point of dispute, is excluded from the tax net. Also, petroleum products like petrol and diesel have been excluded from this tax system for some time. In addition, the council has been given wide powers to decide tax related arrangements. In short, the government is determined to pass this bill unanimously, putting an end to the contentious issues.
The Bill has got the consent of about half of the states and a joint effort is being made between the Center and the States to mitigate the apprehensions of other states. The present Government Goods and Services Tax Bill has been passed in April 2016. Now, if the benefits from the Goods and Services Tax are seen, it will make the present tax system simple, transparent, consistent and effective at the initial level. This will get rid of the complex of complex procedures and rules and regulations at both the level of taxation and tax collection. The integrated tax system is also able to relieve customers from double taxation. With this, while customers will be able to get rid of ‘Inspector Raj’, they will also be able to avoid the increase in prices.
Apart from this, the creation of a ‘National Common Market’ at the same level of taxes at both the Central and State levels will also help. Also, this reform of the tax system will also help in creating a better competitive environment for trade and investment at domestic and international levels. The effects on all these micro levels will also increase the GDP of the country. Overall, this tax-related reform will work together to accelerate economic growth and development.
In conclusion, the tax system is the backbone of the economic system of any nation. The stronger the economic structure, the stronger it will be. In this perspective, if we look at the international experiences related to ‘Goods and Services Tax’, positive and encouraging results are seen. Economic reform is essential for an emerging economic power like India. Therefore, it seems credible to implement the provisions of the Goods and Services Tax, making the Center and the states universally friendly.