GST: After 17 years of brainstorming, India wakes up to historic tax reform

'Tonight, we are rewriting the destiny of our country, PM Modi' said at the midnight launch event

The biggest tax reform in Independent India, the goods and services tax (GST), was finally rolled out at the midnight hour on Friday, with President Pranab Mukherjee and Prime Minister Narendra Modi pressing a button to mark the occasion in the historic central hall of Parliament.

Calling the GST “a good and simple tax”, Modi said the country was moving towards a modern taxation system, much simpler and more transparent than the existing one. “From Gandhinagar to Itanagar, from Leh to Lakshadweep, the dream of one nation, one tax will come true,” he added.

The GST replaces 17 central and state taxes, including services tax, value-added tax, octroi, duties and other charges, except Customs levy, across the country except in Jammu and Kashmir. The tax will create a common market in the $2-trillion economy with 1.3 billion people. It is expected to curb “tax terrorism and inspector raj”. 

At the hour-long event, former prime minister H D Deve Gowda, industrialist Ratan Tata, and Reserve Bank of India Governor Urjit Patel were present. Star invitees such as the brand ambassador for the indirect tax, Amitabh Bachchan, and Lata Mangeshkar did not make it. 

Former PM Manmohan Singh as well as former finance minister P Chidambaram, who had proposed the GST in the 2006-07 Budget, and other Opposition leaders were conspicuous by their absence. They had decided not to attend as they felt the GST is not ready to be rolled out. However, former West Bengal finance minister Asim Das Gupta, also the former chairman of the empowered committee of state finance ministers, was present even as the Communist Party of India (Marxist), of which he is a member, boycotted the event.

Traders, who have been protesting various provisions of the GST laws, also escalated their agitation on Friday, observing a daylong Bharat Bandh.

The PM, however, claimed the GST would benefit businesses.

“Businesses will no longer be harassed by tax officers, as all grey areas have been removed,” Modi said, adding black money creation and corruption will be curbed. The PM also said the GST would yield more resources for the poor, with an increased tax base.

Hours before the new indirect tax regime was rolled out, the GST Council gave relief to agitating farmers in the kharif sowing season by lowering the rate on fertilisers to 5 per cent from 12 per cent and on tractors parts to 18 per cent from 28 per cent.

“There was uncertainty around the proposed GST rate for fertilisers. The GST Council has given approval to additional laws needed for its implementation,” said Finance Minister Arun Jaitley.

On the initial difficulties businesses might face, Modi said they would have to swiftly align themselves with the new tax regime.

President Mukherjee, who was finance minister when the first Constitution amendment Bill on the GST was moved in the Lok Sabha, said the GST was a disruptive change. However positive it might be, there was bound to be some teething troubles and difficulties. He called upon the GST Council to continue improving the design of the tax.

He also said the GST would make India’s exports more competitive and provide a level playing field to domestic industry to compete with imports.

Jaitley said the GST would rein in inflation, and make it difficult to evade taxes, besides enhancing the gross domestic product growth.

The Parliament building and the GST Bhavans across the country were lit up on the eve of the roll-out. Restaurants billed consumers differently before and after midnight.

All goods and services have been slotted under six tax slabs: 0 per cent, 3 per cent (for bullion), 5 per cent, 12 per cent, 18 per cent, and 28 per cent. There is also a cess, over and above the highest rate, for demerit goods.

The long road
 

The GST, originally slated to be rolled out on April 1, 2010, missed successive deadlines over seven years. Assessees will enjoy some relaxations for filing returns for July and September.

• 2000: PM Atal Bihari Vajpayee introduces the concept, sets up a panel headed by then West Bengal FM Asim Dasgupta to design a GST model 
• Feb 2006: FM P Chidambaram proposes April 1, 2010, as the target date to roll out GST
• Dec 2014: After years of discussions, and several panels, working groups and discussion papers, the Constitution Amendment to GST Bill introduced by FM Arun Jaitley in the Lok Sabha
• May 2015: The Lok Sabha passes the Constitution amendment Bill
• Aug 2016: The Rajya Sabha also passes the Bill
• Sep 2016: President Pranab Mukherjee gives his assent to the Bill; GST Council formed
• Mar 2017: Four Bills — central GST, integrated GST, Union Territory GST, and compensation to states — passed by the Lok Sabha
• Apr 2017: The Rajya Sabha passes the Bills
• Jul 1, 2017: GST comes into effect