One Year has passed since the ‘One Nation, One Tax’ regime has been in place. Despite initial apprehensions, its success has to be measured on the yardsticks of ‘common man friendliness’, ‘advantages for trade and industry’, benefits to economy’ and ‘simplified tax structure’
Dr Sarangapani Bommaraju
The Modi Government has accomplished the biggest tax reform after Independence with the successful implementation of the Goods and Services Tax (GST). It was first mooted by the Atal Bihari Vajpayee Government in 2000. The Kelkar Committee, which examined the issue in 2004, observed that a tax reform of nationwide dual GST would be able to achieve “a common market, widen the tax base, improve the revenue productivity of domestic indirect taxes and enhance welfare through efficient resource allocation”. It took nearly 17 years before GST was finally launched on July 1, 2017.
The division of powers between the Centre and the States are clearly delineated in the 7th Schedule of the Constitution, which was amended in 2016 to introduce the GST which subsumed a number of central and state taxes. A dual GST structure has been designed empowering the Centre and the States to concurrently levy GST on intrastate trade. In addition, an integrated GST (IGST) is designed to tax supplies in the course of inter-state trade.
India now a Common Market
The Constitution intends through Article 301 to have “a free flow of trade, commerce and intercourse throughout the territory of India”. Since the safeguards provided in the Constitution were not in operation effectively, the Central and the State Governments used flexibilities provided in Article 302 and 304 to levy multiple taxes. The domestic trade barriers in the form of having different tax rates and procedures in different states and complexity of tax structure and administration stood in the way of India emerging as a single common market. The complex multi layered indirect tax structure had fragmented Indian market into 29 regional markets.
The newly created constitutional body, GST Council, has emerged as a unique institution, where the Centre and the States are willing to pool their sovereignty and give fiscal space to each other. The Council, since its formation in September 2016, has worked at a fast track and has been responsive to the needs and feedback of the trade, industry and other stakeholders and made a number of mid-course corrections after the roll-out of GST. The Council’s structure and working gave inspiration for being replicated in other crucial areas for the promotion of cooperative federalism.