GST was first proposed in the early 2000s. After years of discussion, it was passed by Parliament in 2016. It went into effect nationwide on July 1, 2017.
Tax Reform from Tomorrow: Know what is GST and why is it important?
At the recent GST Council meeting, several key changes were introduced that have made India's tax system more straightforward and transparent than ever before. These GST reforms are projected to reduce prices for a wide range of items, bringing relief to consumers. Interestingly, France pioneered the Goods and Services Tax (GST) system back in 1954. Today, over 160 countries across the globe have adopted this unified indirect tax model. India launched its GST regime in 2017, marking a major milestone in its tax reform journey.
The concept of GST in India was initially proposed in the early 2000s during the tenure of then Prime Minister Atal Bihari Vajpayee. Under his leadership, a committee was formed to draft a comprehensive GST framework. Following extensive discussions spanning nearly 16 to 17 years, the Parliament approved the GST law in 2016. Subsequently, the GST Council was established to oversee the roll-out and implementation process. Finally, on July 1, 2017, the country transitioned to a unified tax system under the motto "One Nation, One Tax," effectively replacing the complex web of multiple indirect taxes.
Why was GST implemented in India and what are its benefits?
It aimed to replace various indirect taxes, such as VAT, service tax, and excise duty, with a unified tax system. It also aimed to reduce the tax burden on consumers and simplify the tax system. The implementation of GST was the biggest reform to the tax system since independence. Previously, the tax structure had four levels: 5%, 12%, 18%, and 28%. Following the recent GST reform, the tax structure was reduced to two levels: 5% and 18%.
Overall, the objective of implementing GST was to provide a unified tax structure, freeing the country from the burden of multiple taxes. It simplified business by applying uniform rules across the country. Since it is a digitally based, online tax system, it is more transparent and curbs tax evasion. This also increases government revenue.
GST Reform to Come into Effect Tomorrow:
A major and historic change to India's indirect tax system is set to come into effect tomorrow, September 22nd. Under this reform, two slabs have been introduced, simplifying the tax system: 5% and 18%. Under this reform, harmful products like tobacco, cigarettes, and aerated drinks have been taxed at a rate of 40%.
Under this reform, many household items that were previously taxed under the 12% tax slab will now be brought under the 5% tax slab. This will make many everyday essentials, such as shampoo, soap, toothpaste, baby products, and dairy products, cheaper. Furthermore, under GST 2.0, the 18% GST on life and health insurance has been removed to ensure greater accessibility.
The automobile sector will also benefit significantly from the GST reform. The 28% GST on small cars with engines less than 1200 cc will be reduced to 18%. This will also reduce the GST on two-wheelers. However, no relief has been provided to luxury cars.
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