At the stroke of midnight, India ushered in its much awaited goods and services tax (GST) system that is expected to transform Asia’s third largest economy into a single market for goods and services for the first time since Independence.
Seen as a watershed moment in India’s fiscal history, the GST came into force at a historic midnight session in the Central Hall of Parliament when President Pranab Mukherjee and Prime Minister Narendra Modi jointly pressed a buzzer to mark the launch of the new modern tax system, which has been the most ambitious tax reform in decades.
The launch of GST is the culmination of a 14-year-long journey which began in December 2002, when the Kelkar Task Force on indirect taxation suggested a comprehensive GST based on value-added tax principle.
GST benefits
Outlining the benefits of the new GST system, Finance Minister Arun Jaitley said in his address that the new system has been framed with the objective of maintaining the principle of equivalence, revenue neutrality and ensuring that no unnecessary burden is imposed on the weaker sections of society.
The significant benefit of GST can be gauged from the fact that as many as 17 transaction taxes at the level of the Centre and States put together and 23 cesses have been done away with and replaced by just one tax (GST), Jaitley said.
Each of the transactional taxes required separate filing of returns and now with the GST system just one return related to GST would do, according to Jaitley.
Besides reducing the cascading of taxes, the GST system will ensure set-off of taxes paid on inputs against the taxes payable on output (popularly referred as input tax credit).
Jaitley said the GST system will put a lid on price rise, tax avoidance will become difficult, it will eliminate delays at state border crossings and give a boost to the country’s GDP.
Economic integration
Speaking on the occasion, Prime Minister Modi said the direction and path that the country had chosen (to implement GST) is not an endeavour of one political party. “This has come as a joint effort of all of us,” he said.
Stating that all states have come together like “pearls in a string” to help implement the new tax system, Modi said GST is an example of co-operative federalism that “will give us strength to work together in future also”.
Modi said GST is the most meaningful step for the poor of the country.
Just as Sardar Patel had ensured political integration of the country, GST would ensure economic integration, Modi said.
Describing GST as “Good and Simple Tax”, Modi said GST is good because it would ensure there is no cascading of taxes and secondly it is simple because there would only be one tax and one form to comply with the new system.
“Today, after GST implementation, from Ganganagar to Itanagar and from Leh to Lakshadweep….One Nation, One Tax. This dream will be realised,” Modi said.
GST would lead to a modern tax administration which is simpler, more transparent and helps curb corruption and black money, he said. Honest traders will be enthused as the GST system will usher in a new governance culture.
Grey areas
With the use of technology, which provides a trail, there will be no “grey area” for the bureaucracy. Common traders should not -- with the introduction of this modern tax system -- face difficulties at the hands of officers. “GST would ensure that the honest businessman does not get unnecessarily harassed and that day is not far off,” Modi said.
Modi also said foreign investors will flock to India if the tax system gets streamlined. They would then start to treat India as a preferred destination for investments.
GST will be a catalyst that will help give a push to domestic trade and also promote exports, he said. In his address, President Mukherjee said GST is a disruptive change. It is similar to the introduction of VAT when there was initial resistance.
“When a change of this magnitude is undertaken, however positive it may be, there are bound to be some teething troubles and difficulties in the initial stages. We will have to solve these with understanding and speed to ensure that it does not impact the growth momentum of the economy. Success of such major changes always depends on their effective implementation,” Mukherjee said.
In the months to come, based on the experience of actual implementation, the GST Council and the Central and state governments should continuously review the design and make improvements in the same constructive spirit as has been displayed till now, Mukherjee said.
Among the special invitees who attended the launch event at the historical Central Hall of Parliament included industrialist Ratan Tata and Reserve Bank of India Governor Urjit Patel.