The Reasons Why GST Took 17 Years To Be Implemented In India

The number of tax levies in India’s convoluted indirect taxation system before the implementation of GST was astonishing. There were different levies at the state and central levels, including taxes such as excise duty, service tax, local sales tax, value-added tax, and many others. The first overhaul of India’s tedious tax system was suggested by the then finance minister, VP Singh, in 1986.

However, it took another 14 years for the GST concept to be introduced in parliament under Prime Minister Atal Bihari Vajpayee, at the turn of the millennium. From 2000, it took another 17 years for the GST concept to become India’s single tax system. GST’s journey from concept to a bill to the law has been gripping and painful at the same time.

GST was India’s most significant and radical tax reform post-independence. Even after the introduction, the implementation of GST has not always been smooth sailing. This short article addresses the reason why 17 years were needed for GST implementation in India.

  1. The Coalition Years

Irrespective of which political party was in power, the period between 2000 and 2014 often consisted of coalition governments. Coalitions meant that governments often had difficulties in reaching consensus across both houses of parliament. Coalition governments also suffered because state governments were concerned about a loss of income and wanted to maintain the status quo.

Ultimately, the GST bill, introduced by the finance minister, P Chidambaram, in 2006, lapsed in 2014. There were multiple attempts to assuage state governments, including a famous Rs 9000 crore compensation, promised in the finance minister’s budget speech in 2013. However, the lack of political consensus meant that India’s biggest taxation reform was put on hold for another few years.

  1. Untangling The Convoluted Indirect Taxation System

India’s erstwhile taxation system was a legacy of the country’s fragmentation under British rule. The number of central and state levies seemed to be almost as many as the languages. As the digital revolution swept the country in the 2000s, reforming India’s tax regime was badly needed.

However, it was easier said than done.  As part of untangling the convoluted indirect taxation system of India, revenue loss from erstwhile state levies and transformation of the digital and physical infrastructure to adapt to the new tax regime were significant challenges that needed to be overcome. Support from the medium and small enterprises, businesses, and the general public who were used to the existing system for decades also was a significant barrier to untangling Indian taxation’s checks and balances and replacing it with a simple and transparent GST check.

  1. India’s Size And Diversity

A quick search for ‘GST latest news‘ in 2019-20 will show a positive picture of increased tax revenues and reduced red-tape due to the implementation of the GST. However, it was not all smooth sailing in the lead up to the GST bill becoming law. Several challenges simply arose because of India’s huge size and diversity, which meant that taking feedback from multiple stakeholders became vital.

For studying this monumental change, a task force was formed by the Vajpayee govt in 2003. An empowered committee of state finance ministers was constituted in 2008. A discussion paper was released in the public domain by the same empowered committee in 2009.

These were just the initial steps. After the bill lapsed in 2014 due to multiple issues with different stakeholders, it still took another 3 years for it to reach consensus at the state and centre levels, thereby becoming a law and finally being rolled for implementation.

Even after the bill was passed by both houses of the parliament in 2016, there was a raft of iterations done by the government based on feedback from multiple bodies. Between 2016 and October 2018, the GST council, under then finance minister, Arjun Jaitley met 30 times and took 918 decisions on the tax system.

While the GST can be said to have simplified India’s taxation to a great extent, bringing it into law was anything but a simple process. The process of bringing about this reform in a country of a billion people was a great example of India’s democratic strength. As India’s ex-finance minister and later President, Pranab Mukherjee said, “GST is a tribute to the maturity and wisdom of India’s democracy.”

News Reporter