With GST launch, India moves to ‘One Nation, One Tax’: What changes from today
The historic Central Hall of Parliament has stood witness to several landmark moments in Independent India, notable among them the midnight celebrations of Indian Independence on August 15, 1947, 1972 and 1997. At the stroke of midnight hour on July 1, the dome structure was a silent spectator to another historic event when Prime Minister Narendra Modi and President Pranab Mukherjee, who has only a few weeks left of his term, touched a button to launch the Goods and Services Tax (GST) in the country. The new tax regime, touted as the biggest reform in 70 years of Independent India, subsumes over a dozen taxes to convert the nation into a single market.
The boycott by the Congress, the Left and some other opposition parties failed to overshadow the enthusiasm over the Narendra Modi government's plan to celebrate the launch as its achievement. Along with President Mukherjee and PM Modi, hundreds of MPs and other eminent personalities were present when the GST was officially launched.
PM Modi, who rose to power in 2014 on the promise of big bang reform, termed GST as a ‘Good and Simple Tax’, saying it will put an end to tax terrorism and Inspector Raj in India. “GST is a good and simple tax regime that will eliminate the compounding effects of a multi-layered tax system. It is is a transparent and fair system that prevents black money and corruption and promotes a new culture of governance,” the Prime Minister said, adding that the GST is the economic integration of India just like what Sardar Vallabhbhai Patel had done decades back to integrate the country.
The Prime Minister also credited the President and all political parties involved in the making of this mega tax reform over the years. “The credit for GST does not go to one party or one government alone. It is the combined legacy of all of us,” he said.
President Mukherjee said it will act as a major boost to economic efficiency, tax compliance and domestic and foreign investment. “GST is a tribute to the maturity and wisdom of India's democracy. Introduction of GST is a momentous event for the nation. It will make India's exports more competitive and provide level-playing field to domestic industry to compete with imports,” he said.
The President also touched upon the challenges that may be faced with the introduction of the new law. “GST is a disruptive change; however positive it may be, there are bound to be some teething troubles and difficulties,” he said.
The GST replaces the messy mix of more than a dozen state and central levies built up over seven decades. The government promises that the transition to a single, nationwide tax on goods and services will streamline business and boost the economy by tearing down barriers between 31 states and union territories. It is estimated to add 0.4 per cent to 2 per cent to GDP growth.
Addressing the gathering, Finance Minister Arun Jaitley said that GST marks an important achievement for the whole country. “India that will write a new destiny under GST. The reform shows India can rise beyond narrow politics,” he said.
“The GST may be a destination tax, but for India it will begin altogether a new journey. The old India was economically fragmented, the new India will create one tax, one market and for one nation,” Jaitley added.
What changes from today
Effective midnight, India will bid adieu to 17 taxes and 23 cesses which will all be subsumed into one GST.
Besides immediate effect on cost of goods and services in the country, the GST will have far reaching impact on Indian economy. Over 1,200 items, from shampoo to tea to automobiles, have been put in four broad tax categories. Unbranded food staples including vegetables, milk, eggs and flour will be exempt from GST, along with health and education services. Tea, edible oils, sugar, textiles and baby formula will attract a 5 per cent tax.
The government has imposed the tax rates in a way that essential services and food items remain in the lower tax bracket and luxury services and products attract higher tax. A total of 81 per cent of all the goods and services fall below or in 18 per cent tax slab. While 7 per cent of the items come under the exempted list, 14 per cent fall in the 5 per cent tax slab, 17 per cent in the 12 per cent slab, 43 per cent under 18 per cent tax rate and only 19 per cent of the items will fall under the highest 28 per cent tax slab in the new regime.
Some businesses are still figuring out how it will work as they race against time to adopt or upgrade cash registers and computer system so they are able to file monthly tax returns that comply with the new tax regime.
For many, the GST is complex with four broad tax categories of 5, 12, 18 and 28 per cent, and myriad exceptions, as opposed to a simpler, flatter and broader sales taxes in other countries. The Bhartiya Janata Party (BJP)-led government, which showed its political will by securing support of all parties in getting the GST bill passed in the Parliament, will face the real test when it has to deal with the hiccups of such a massive reform.
Prime Minister Narendra Modi and Finance Minister Arun Jaitley will definitely go down in history as the men who succeeded in bringing GST to reality but the journey of this taxation system has had many crucial contributions, both from political leaders as well as economic visionaries. First proposed in 2003, the idea of GST was bogged down for years in a bipartisan debate, with political parties in government trying to push it and those in opposition dragging it down. Before Modi came to power three years ago, his party was not particularly in favour of the GST.
The journey started with a meeting chaired by the then Prime Minister Atal Bihari Vajpayee where the GST was first proposed. Later in the years, leaders from different parties, ranging from Left's Asim Dasgupta, Kerala Congress' KM Mani, Congress' P Chidambaram, and TMC's Amit Mitra and Arun Jaitley refined the tax structure which has taken the current form.
The new taxation was brought after the 115th Amendment of Constitution enabled introduction of GST-related bills. While the Lok Sabha passed the Goods and Services Tax (GST) Constitutional Amendment Bill in June 2015, it was passed in the Rajya Sabha in August 2016. The bill was then circulated to state governments seeking its ratification. President gave his assent to the bill in September that year, paving the way for setting up of a GST council that will decide the tax rate, cess and surcharges.
In March, 2017, the Parliament passed four GST-related bills -- Central GST, Integrated GST Bills, Union Territory GST and the GST (Compensation to the States) Bill 2017, which were later ratified by state assemblies.