GST HISTORY

GST History and Evolution in India

ONE NATION - ONE TAX

France was the first country to implement the GST in 1954; since then, an estimated 160 countries have adopted this tax system in some form or another. Some of the countries with a GST include Canada, Vietnam, Australia, Singapore, United Kingdom, Monaco, Spain, Italy, Nigeria, Brazil, South Korea, and India.

With the concept of "One Nation One Tax", the Goods and Services Tax (GST) has been implemented in India. India established GST structure in 2017, which was the biggest reform in the country's tax structure in decades. India with a unified GST platform merged central taxes (ie. sales tax and excise duty tax except for petrolium and alchoholic products and service tax) with state-level taxes (ie. VAT except for petrolium and alchoholic products, entry tax, transfer tax and luxury tax) and collects them as one single tax.

The main objective of incorporating the GST was to eliminate tax on tax, or double taxation, which cascades from the manufacturing level to the consumption level. The goods and services tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.

  • The goods and services tax (GST) is a tax on goods and services sold domestically for consumption.

  • The tax is included in the final price and paid by consumers at point of sale and passed to the government by the seller.

  • The GST is usually taxed as a single rate across a nation.

For example, a manufacturer that makes notebooks obtains the raw materials for Rs. 10, which includes a 10% tax. This means that they pay Rs. 1 in tax for Rs. 9 worth of materials. In the process of manufacturing the notebook, the manufacturer adds value to the original materials of Rs. 5, for a total value of Rs. 10 + Rs. 5 = Rs. 15. The 10% tax due on the finished good will be Rs. 1.50. Under a GST system, the previous tax paid can be applied against this additional tax to bring the effective tax rate to Rs. 1.50 – Rs. 1.00 = Rs. 0.50.

In turn, the wholesaler purchases the notebook for Rs. 15 and sells it to the retailer at a Rs. 2.50 markup value for Rs. 17.50. The 10% tax on the gross value of the good will be Rs. 1.75, which the wholesaler can apply against the tax on the original cost price from the manufacturer (i.e., Rs. 15). The wholesaler's effective tax rate will, thus, be Rs. 1.75 – Rs. 1.50 = Rs. 0.25.

Similarly, if the retailer's margin is Rs. 1.50, his effective tax rate will be (10% x Rs. 19) – Rs. 1.75 = Rs. 0.15. Total tax that cascades from manufacturer to retailer will be Rs. 1 + Rs. 0.50 + Rs. 0.25 + Rs. 0.15 = Rs. 1.90.

India has, since launching the GST on July 1, 2017, implemented the following tax rates:

  • A 0% tax rate applied to certain foods, books, newspapers, homespun cotton cloth, and hotel services.

  • A rate of 0.25% applied to cut and semi-polished stones.

  • A 5% tax on household necessities such as sugar, spices, tea, and coffee.

  • A 12% tax on computers and processed food.

  • An 18% tax on hair oil, toothpaste, soap, and industrial intermediaries.

  • The final bracket, taxing goods at 28%, applies to luxury products, including refrigerators, ceramic tiles, cigarettes, cars, and motorcycles.

However, these rates may be changed from time to time by the GST Counsil.

The implementation of the GST system in India is, therefore, a measure that is used to reduce inflation in the long run, as prices for goods will be lower.

GST Evolution:

Herein below is the step by step process to change the company name:

  • 1

    Constitutional Amendment

    Through Govt of India - 8th September 2016

    On 19th December, 2014, The Constitution (122nd Amendment) Bill 2014 was introduced in the Lok Sabha and was passed by Lok Sabha in May 2015. The Bill was taken up in Rajya Sabha and was referred to the Joint Committee of the Rajya Sabha and the Lok Sabha on 14th May, 2015. The Select Committee submitted its report on 22nd July, 2015. Thereafter, the Constitutional Amendment Bill was moved on 1st August 2016 based on political consensus. The Bill was passed by the Rajya Sabha on 3rd August 2016 and by the Lok Sabha on 8th August 2016. After ratification by required number of State legislatures and assent of the President, the Constitutional amendment was notified as Constitution (101st Amendment) Act 2016 on 8th September, 2016.

  • 2

    Introduction of Central Bills

    Through Govt of India - 2017

    The Central Goods and Services Tax Bill 2017 (The CGST Bill), the Integrated Goods and Services Tax Bill 2017 (The IGST Bill), the Union Territory Goods and Services Tax Bill 2017 (The UTGST Bill), the Goods and Services Tax (Compensation to the States) Bill 2017 (The Compensation Bill), these Bills were passed by the Lok Sabha on 29th March, 2017. The Rajya Sabha passed these Bills on 6th April, 2017 and were then enacted as Acts on 12th April, 2017.

  • 3

    Introduction of State Bills

    Through State Gvoernments - 2017

    State Legislatures of different States have passed respective State Goods and Services Tax Bills. After the enactment of various GST laws.

  • 4

    Effective date of GST implementation

    Through Govt of India - 1st July 2017

    GST was launched with effect from 1st July 2017 by Sh.Narendra Modi, Hon'ble Prime Minister of India in the presence of Sh.Pranab Mukherjee, the then President of India.