a. Indirect Tax Regime - A Historical Perspective:
CENVAT and Service Tax levied by the Centre and the VAT levied by the States presently are the principal broad-based consumption taxes that would be replaced by GST. These are multi-stage value-added taxes. Indirect Tax system of any country, being transaction-based tax, hasan overall huge impact, not only in terms of the consumption taxes being paid by the end-consumer, but also the 'compliance costs' being incurred by the business entities.
Unfortunately, for nearly five decades after independence, the Indirect Tax System in India, both at Centre and States level, remained multi-tiered, and suffered from inherent complexities, cascading effect of 'tax on tax' and lack of consistency and clarity. The system that prevailed a few years ago was, as described in the Amresh Bagchi Report (1994) "archaic, irrational and complex - according to knowledgeable experts, the most complex in the world." Despite phenomenal progress made in the past two decades to implement the basic design of VAT in the form of CENVAT at the Centre and VAT at the States level, the systems continue to suffer from many shortcomings.
In the words of one of the most respected GST experts globally, Mr. Sijbren Cnossen: " India's system of indirect taxation at the Central and State Level is a serious obstacle to the formation of a single common market in which business source anywhere, manufacture anywhere and sell anywhere. Its complexity is baffling and its incidence is highly capricious and indeterminate. The system's multiple tax-on-tax effects cascade throughout the production-distribution chain with harmful economic consequences. These effects are compounded by the lackof co-ordination between the various forms of indirect taxation (sales tax, excise duties, import duties) and between the levels of Government (Centre vs. State, State vs. State), as well as the uneven enforcement of the respective tax administrations."
The basic objective of any tax reform in the 'Indirect Tax Regime' would be to address the problems of the current systems. 'It should not only establish a system that is economically efficient and neutral in application, distributionally attractive and simple to administer, but at the same time, be capable of broadening the tax base while maintaining the autonomy of the taxation powers of Centre and the States guaranteed under the Constitution".
It is, therefore, no wonder that a comprehensive 'Value Added Tax' ('VAT') or 'Goods and Services Tax' ('GST') is looked upon as the only 'saviour' to lift India out of the 'tax-mess' it currently finds itself in.
The switch-over to 'Goods and Services Tax' ('GST') is justified as it is viewed that GST is capable of addressing the problems associated with the current tax system and of achieving the above objectives. The proposed GST system is targeted to be a simple, transparent and efficient system tax system which would help achieve a common market, widen tax base, improve revenue productivity of 'domestic indirect taxes' and enhance welfare through efficient resource allocation.
b. GST - A torturous journey so far…!
In the Indian context, initial discussions on GST started in the year 2000 under the aegis of an Empowered Committee of the States' Finance Ministers '(EC') headed by Shri Asim Dasgupta, the then FM of West Bengal. However, the 'saga' of 'GST' can be said to have begun in right earnest, in the year 2006 when a proposal to introduce a national level GST was mooted in the Budget Speech of F. Y. 2006-07. 'April, 2010' was also set as a 'deadline' for the introduction of this 'Game-changing Indirect Tax Reform' in the country. The task of designing and implementing GST was, however, entrusted to EC which appointed various Working Groups and had various discussions with the stakeholders. In April, 2008, EC submitted its Report titled "A Model and Roadmap for Goods and Service Tax (GST) in India" containing broad recommendations about the structure and design of GST. Subsequently, based upon the inputs from the Government of India and the States, EC released its 'First Discussion Paper on Goods and Services Tax ' on 10th November, 2009.
However, the deadline of 'April, 2010' proved to be too ambitious and could not be met for obvious reasons!
Since the Constitution of India does not confer any concurrent taxing powers to the Centre and the States to levy tax on every transaction of supply of goods, or services, or of both, appropriate amendments to the Constitution are inevitable for the introduction of GST and to empower both, the Centre and the States to concurrently impose it on all transactions. With this objective, the Constitution (One hundred and Fifteenth Amendment) Bill, 2011 ('115th Bill') had earlier been introduced in the Lok Sabha on 22nd March, 2011. However, the Bill lapsed with the dissolution of fifteenth Lok Sabha.
What thus began as an 'exciting saga' in the year 2006 was fast turning into a 'sordid saga' before the eyes of the bewildered stakeholders - politicians and bureaucrats excluded ! To the dismay of all, what was eagerly awaited as "Good & Servicing Tax" was becoming a 'God-for-Saken Tax'!
However, as a result of renewed efforts and serious re-negotiations between the Centre and the States, the much-awaited 'Constitution Amendment Bill', titled as 'The Constitution (One Hundred and Twenty Second Amendment) Bill, 2014' ('the GST Bill' or 'the Bill') to pave the way for the introduction of GST in India was tabled by the FM in the Lok Sabha on 19 th December, 2014. Till then, the question uppermost in the minds of all was 'will it be ever?" But the firm resolve with which the FM tabled the Bill, it seemed as if "its now or never!"
GST Bill primarily aims at empowering both, Centre and the States(including Union Territories) to concurrently levy and collect GST on every transaction involving supply of goods, or of services, or of both.
Predictably, the GST Bill had a fairly smooth passage in the Lok Sabha where NDA Government enjoys a clear majority. The Bill was passed by the Lower House on May 6, 2015- a day which would surely be remembered as 'Historic' in the history of Indian GST! However, as was apprehended, the Bill ran into 'rough weather' in Rajya Sabha where the ruling party is lacking the desired strength. Bowing down to the combined onslaught of the opposition, the Government finally referred the Bill to the Select Committee of Rajya Sabha for its recommendations. The Committee tabled its Report on 23rd July, 2015 mainly endorsing the GST Bill, but recommending modifications to a few select clauses of the Bill. The Union Cabinet promptly accepted all the recommendations of the Committee, fervently hoping that this would ensure a smooth passage of the Bill in the Rajya Sabha.
But alas! That was not to be! In an unfortunate development, the eruption of 'LaMo controversy' and what followed thereafter resulted into the washing out of the Monsoon Session, and sealed the fate of the GST Bill in the process!
c. GST Bill - Uncertainty lies ahead…..!
As is famously said: 'politics is a vocation of extreme uncertainties'! The dark clouds of political uncertainty are hovering above the GST Bill and it is hazardous to make a guess as to how and when these clouds would dissipate. No doubt, in the recent days, frantic activities appear to have been taking place on GST front, what with release of 4 (four) Reports by the Joint Committee working under the aegis of the EC on "Business Processes for GST in respect of Registration, Payment, Refunds & Returns." [Even a Draft GST Law for the Centre/States is in circulation but apparently, has not been officially released by the Government].
Simultaneously, sincere efforts are on to builda consensus amongst all the political parties to ensure the passage of the truncated Bill in the Upper House during the ongoing Winter Session. However, even then, it is highly unlikely that the Govt. would be able to meet the deadline of 'April, 2016' for the implementation of nationwide GST and the earliest date one can look forward to is 'October, 2016'.
d. "Delay in passage of GST Bill - 'A God-sent opportunity' perhaps!"
Painful though it may be, the delay in the passage of the GST Bill may prove to be a 'blessing in disguise' ! The Bill has many 'birth defects' which need to be cured and there is a time and opportunity to do so. If the Bill is allowed to be enacted in its present form, it would remain handicapped in dealing with the interpretation and implementation issues which may arise in future. GST Bill is poorly drafted and has many distortive features that need serious and critical attention of the law-makers at this stage only, or else it would spell disaster in future.
Against the above historical backdrop and keeping in view the present status of the Bill, let us now have a critical look at a few important clauses of the GST Bill. [ Reproduction of provisions is avoided due to space constaints.]
