Before GST came into operations Indian indirect system was suffering from various shortcomings. Bagchi, A., (1994) denoted trade taxes existed in India as archaic, irrational and complex necessitating immediate reforms. Further Chelliah (2006) described then prevailing indirect tax laws as irrational and bringing cascading effects. The existing confusions and complexities were acting as barriers in ease of doing business.
Goods and Services tax (GST) was introduced in India with effect from 1st July 2017. GST is an integrated system of taxing goods and services at national level. It is grounded on the notion of “one country one tax.” Starting from France in 1954 it has now spread around in 160 countries in the world. It takes its form from Value added tax (VAT) which first appeared in the form of Modified value added tax (MODVAT) in the year1986. Thereafter, it was introduced in services tax in the year 1994 and then, in the sales tax at the States level in the year 2006.
One of the common problems of consumption taxes is that it may turn out to be regressive if tax rates are not structured properly. To defeat this regressive nature of consumption taxes, most of the countries in the world have implemented two rate structure; standard and preferential. However, in India five rates structure has been devised for goods and seven rates structure for services. GST is not just combined VAT and services tax rather it binds most of the multiple indirect taxes into one unified whole. It incorporates many distinguishing features that makes it unique in the world.
This story is from the July 2020 edition of The Management Accountant.
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This story is from the July 2020 edition of The Management Accountant.
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