Goods and Services Tax: History of India’s biggest tax reform and people who made it possible
Seventeen years in the making, the landmark Goods and Services Tax (GST) is now a reality. The new tax regime that replaces taxes levied by the central and state governments creates a common national market, meaning any single commodity in the GST regime will have a single price across the nation. First proposed by the Atal Bihari Vajpayee-led NDA government in 2000, GST eliminates human interface from the indirect taxation system, thus bringing more transparency in the system. It is pegged as a gamechanger as it ensures a unified and uniform indirect tax regime besides lowering inflation and promoting growth in the long term. The new tax regime is also one of the biggest pieces of reform that India has seen since it opened up its economy in 1991.
While history will remember Prime Minister Narendra Modi for the launch of this historic financial reform, its making has seen the contribution of several governments and individuals who have made it possible. The erstwhile Congress-led UPA government also deserves credit for giving shape to the legislation and bringing it to Parliament. Having claimed that the GST was its brainchild and that the current NDA dispensation is only taking it forward, it is nothing short of unfortunate that the principal opposition party has decided to abstain from its launch event.
People who made it possible
Atal Bihari Vajpayee, former PM
The BJP veteran was the man who proposed the GST. It was during a meeting between Vajpayee and his advisors that the GST was proposed. Three former RBI governors IG Patel, Bimal Jalan and C Rangarajan were also part of the team that envisaged the indirect tax regime. It was in 2000 that Vajpayee had formed a committee headed by CPM leader and the then West Bengal finance minister Asim Dasgupta to design a GST model. It is said that Vajpayee had personally called then Bengal CM Jyoti Basu requesting him to spare Dasgupta, considered as one of the finest economists in the country, for the role.
Asim Dasgupta, former FM of West Bengal
An MIT doctorate, Dasgupta played a crucial role in designing the GST model. In 2004, when Congress-led UPA was voted to power, the government headed by an economist PM Manmohan Singh refused to remove Dasgupta as the head of GST committee. Dasgupta worked for around seven years to draft a GST model. Manmohan Singh then formed another committee, headed by Dasgupta, to structure the Bills.
KM Mani, former FM of Kerala
The veteran politician and leader of Kerala Congress was Finance minister of Kerala in 2011 when Dasgupta resigned as the head of committee that was tasked to structure the Bills. Mani succeeded Dasgupta and continued the work left by the CPM leader on finalising the Bills. He consulted all players and successfully evolved consensus before quitting in 2015 after his name got mired in a corruption case.
P Chidambaram, former Union FM
Based on the recommendations of the 12th Finance Commission, the senior Congress leader, who was country’s Finance minister in the UPA-I government, had in 2005 pledged to roll out the GST. In February 2006, Chidambaram had set April 1, 2010, as the deadline for the GST implementation. But Chidambaram was replaced by Pranab Mukherjee as Finance minister and approved of the GST structure designed by Dasgupta committee. However, the politics over GST kept the fate of the reform hanging for years.
Amit Mitra, FM of West Bengal
When Mani resigned from the post, the NDA government headed by PM Narendra Modi was in power. Union Finance Minister Arun Jaitley appointed West Bengal Finance Minister Amit Mitra as the head of the GST committee. Mitra, an economist, was the secretary general of the Federation of Indian Chambers of Commerce and Industry (FICCI) before being made minister in the Mamata Banerjee government. Mitra held a series of meetings with state finance ministers and is today credited with bringing all states on the same page for rolling out the GST. However, Mitra later developed some reservations and urged the government to defer the date of implementation stating that the ‘GST in its current form is not acceptable to him’. The minister said that there was need for a more standardized approach to implement the GST.
Arun Jaitley, Union Finance Minister
In May 2014, when the NDA government was voted to power, it started making efforts to make GST a reality. Jaitley had in February 2015 set April 2016 as the deadline for rolling out GST. It was later changed to July 1, 2017.
Chronology of events leading up to introduction of GST:
2000: The then NDA government headed by Atal Bihari Vajpayee began a discussion on GST by setting up an empowered committee, headed by Asim Dasgupta (then West Bengal Finance Minister). The committee was asked to design the GST model and oversee its rollout.
2003: The Kelkar Task Force on indirect tax suggested a comprehensive Goods and Services Tax (GST) based on VAT principle.
2006-07: A proposal to introduce a pan-India Goods and Services Tax (GST) by April 1, 2010, was first mooted in the Budget Speech for the financial year 2006-07 by then FM P Chidambaram.
Since the proposal involved reform/ restructuring of not only indirect taxes levied by the Centre but also the States, the responsibility of preparing a Design and Road Map for the implementation of GST was assigned to the Empowered Committee of State Finance Ministers (EC).
September 2009: In order to take the GST-related work further, a Joint Working Group consisting of officers from the Centre as well as states was constituted.
November 2009: Based on inputs from Centre and states, the empowered committee released its First Discussion Paper on Goods and Services Tax.
March 2011: To amend the Constitution to enable introduction of GST, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha. The Bill was referred to the Standing Committee on Finance of the Parliament for examination and report.
November 2012: A ‘Committee on GST Design’, consisting of the officials of the Centre and states and the Empowered Committee was constituted.
January 2013: The Committee undertook a detailed discussion on GST design including the Constitution (115th) Amendment Bill and submitted its report. Based on this report, the EC recommended certain changes in the Constitution Amendment Bill in their meeting at Bhubaneswar in the same month.
It was also decided during the meet to constitute three committees of officers to discuss and report on various aspects of GST. These included Committee on Place of Supply Rules and Revenue Neutral Rates; Committee on dual control, threshold and exemption and a Committee on IGST and GST on imports.
August 2013: The Parliamentary Standing Committee submitted its report to the Lok Sabha. The recommendations of the Empowered Committee and the recommendations of the Parliamentary Standing Committee were examined in the Ministry in consultation with the Legislative Department and subsequently most of the recommendations were accepted.
September 2013: The final draft Constitutional Amendment Bill incorporating the above stated changes were sent to the Empowered Committee for consideration.
November 2013: The EC once again made certain recommendations on the Bill after its meeting in Shillong. Certain recommendations of the Empowered Committee were incorporated in the draft Constitution (115th Amendment) Bill.
March 2014: The revised draft was sent for consideration of the Empowered Committee. The 115th Constitutional (Amendment) Bill, 2011, for the introduction of GST introduced in the Lok Sabha in March 2011 lapsed with the dissolution of the 15th Lok Sabha.
June 2014: The draft Constitution Amendment Bill was sent to the Empowered Committee after approval of the new government.
December 17, 2014: Based on a broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet approved the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of GST.
December 19, 2014: The Bill was introduced in the Lok Sabha.
June 5, 2015: The Bill was passed by the Lok Sabha. It was then referred to the Select Committee of Rajya Sabha.
July 22, 2015: The Select Committee of Rajya Sabha submitted its report.
June 14, 2016: The Ministry of Finance released draft Model law on GST in public domain for views and suggestions.
March 29, 2017: The Lok Sabha passed Goods and Services Tax (GST) Bill. The Lower House passed all four bills: Central GST, Integrated GST Bills, Union Territory GST and the GST (Compensation to the States) Bill 2017.
April 6, 2017: The Rajya Sabha passed all four supplementary legislations, enabling government to rollout the landmark regime.