Reforming Indirect Taxes in India

International Journal of Computing and Corporate Research
ISSN (Online) : 2249!"4#

$olume 4 Issue % Januar& 2!%4

International 'anuscript I( : 2249!"4#$4I%!%2!%4!"

INDIRECT TAX REFORMS IN INDIA AND A WAY AHEAD FOR GST

Jaiparkash
PhD. Scholar (Economics)

ABSTRACT
VAT is an improvement over the existing
union excise dut at the central level and
over the sale tax at the state level !hile
"ST is a #urther improvement over the
existing VAT !hich is et to $e
implemented most pro$a$l in the coming
#inancial ear as promise made $ our
union #inance minister. The ne! "ST !ill
ensure the greater uni#ormit in the tax
rates throughout the countr and !ill end
the cascading e##ects. The o$%ective o# this
paper is to trace the progress o# &ndia's
indirect tax re#orms #rom an origin($ased
)ST to a proposed destination $ased "ST.

Key Words: GST, VAT, MODVAT,
CENVAT, ITC, TRC, CASCADING
EFFECT.

INTRODUCTION
Taxes are not a new phenomenon; they are
as o! as "#$##sat#on #tse%. The h#story o%
In!#an taxat#on &oes 'a"( to an"#ent per#o!
when we %o)n! "erta#n re%eren"e a'o)t
taxes #n many o! 'oo( #(e Arthshastra
wr#tten 'y *ot#ya pop)ary (nown as
Chan(ya. Th#s 'oo( pro$#!es $ery
$a)a'e #n%ormat#on re&ar!#n& how to
&o$ern an! r)e. A""or!#n& to Arthshastra,
#n an"#ent t#me taxes were e$#e! an!
"oe"te! #n 'oth "ash an! (#n!. Taxat#on
+o#"y has 'een a w#!ey !e'ate! #ss)e a
o$er the wor! an! a ar&e n)m'er o%
st)!#es ha$e 'een "on!)"te! "o$er#n&
!#%%erent aspe"ts o% #n!#re"t taxes. In!#re"t
taxes are aso (nown as "ommo!#ty
taxat#on. The #mpa"t an! #n"#!en"e o%
#n!#re"t taxes may 'e on !#%%erent persons
an! that,s why the ')r!en o% #n!#re"t taxes
"an 'e sh#%te!. A %#xe! proport#on o% the
taxes "oe"te! 'y the Centre !e$o$e to
the states, 'ase! on the re"ommen!at#ons
o% the Centra F#nan"e Comm#ss#on.




The wa$e o% tax re%orms a"ross the wor!
was 'e&an #n m#!-./0s, ')t as %ar as In!#a
#s "on"erne! the tr)e an! systemat#" e%%orts
re&ar!#n& the tax re%orms were #n#t#ate! #n
-..- when the &o$ernment o% In!#a
appo#nte! a h#&h e$e "omm#ttee o%
experts #n A)&)st -..- )n!er the
"ha#rmansh#p o% +ro%. 1.Cha#ah wh#"h #s
pop)ary (nown as 2TRC3 Tax Re%orm
Comm#ttee or Cha#ah Comm#ttee. Most
o% the re"ommen!at#on o% th#s "omm#ttee
has 'een a""epte! an! #n")!e! #n the
')!&et proposa o% -..45.6. In -..-
In!#an e"onomy was pass#n& thro)&h the
e"onom#" "r#s#s, 'aan"e o% tra!e an!
'aan"e o% payment was ne&at#$e, %#s"a
!e%#"#t an! re$en)e !e%#"#t was mo)nt#n&,
#n%at#onary press)re were h#stor#"ay
h#&h, %ore#&n ex"han&e were 'arey
s)%%#"#ent to meet the o$ern#&ht #mport
re7)#rements o% ne"ess#ty &oo!s an! we
were os#n& %a#th #n the #nternat#ona
mar(et. In th#s pan#" s#t)at#on to p) the
e"onomy o)t o% "r#s#s an! to p)t #t on the
r#&ht path o% e"onom#" !e$eopment a
wa$e o% #'era#sat#on, pr#$at#sat#on an!
&o'a#8at#on was #n#t#ate! wh#"h #s
pop)ary (nown as e"onom#" re%orms.
Tax Re%orms Comm#ttee -..-, "ha#re! 'y
Mr. R. 1. Che#ah, was aso a step
re&ar!#n& the str)"t)ra "han&es #n#t#ate!
'y the &o$ernment o% In!#a. 9nt# then, the
e%%#"#en"y o% the #n!#re"t tax system an!
"omp#an"e e$es were se$erey
"omprom#se! 'y $ery h#&h rates o% !)ty,
"o)pe! w#th a ar&e n)m'er o%
exempt#ons %or meet#n& a $ar#ety o% so"#o5
e"onom#" o':e"t#$es. S)"h a tax str)"t)re
was not "on!)"#$e to a"h#e$e h#&h
e"onom#" &rowth.

Apart %rom th#s, the tax re%orms -..- was
mot#$ate! 'y a n)m'er o% %a"tors s)"h as
press#n& %#s"a #m'aan"es, to "orre"t
se$ere ')!&etary press)res, trans#t#on %rom
a panne! e"onomy to a mar(et e"onomy,
#nternat#ona#8at#on o% e"onom#" a"t#$#t#es
ar#s#n& %rom &o'a#8at#on, wh#"h
emphas#8e! the nee! to m#n#m#8e 'oth
#ne%%#"#en"#es an! "omp#an"e "osts o% the
tax system. The tax system #n In!#a #s
ma#ny a three t#er system wh#"h #s 'ase!
'etween the "entra, state an! the o"a
&o$ernment or&an#8at#ons. In most "ases,
these o"a 'o!#es #n")!e the o"a
"o)n"#s an! the m)n#"#pa#t#es. Art#"e
;6<, o% the In!#an Const#t)t#on, !#str#')tes
e&#sat#$e powers #n")!#n& taxat#on,
'etween the +ar#ament an! the state




e&#sat)re. S"he!)e VII en)merates these
s)':e"t matters w#th the )se o% three #sts;
Centra =#st5 enta##n& the areas on wh#"h
ony the par#ament #s "ompetent to ma(es
aws, State =#st 5 enta##n& the areas on
wh#"h ony the state e&#sat)re "an ma(e
aws, Con")rrent =#st 5 enta##n& the areas
on wh#"h 'oth the +ar#ament an! the State
=e&#sat)re "an ma(e aws )pon
"on")rrenty.

Review o !i"er#"$re
Re%orm#n& the tax system #s "r#t#"a to
a"h#e$e %#s"a "onso#!at#on, m#n#m#se
!#stort#ons an! to "reate sta'e an!
pre!#"ta'e en$#ronment %or the mar(et to
%)n"t#on. In many !e$eop#n& "o)ntr#es,
tax po#"y was !#re"te! to "orre"t %#s"a
#m'aan"es 2Ahma! an! Stren, -..-3. In
other wor!s the trans#t#on %rom "entra#se!
pann#n& to mar(et or#ente! e"onomy
re7)#re! w#!e ran&#n& tax re%orms to
repa"e p)'#" enterpr#se w#th taxes as
pr#n"#pa so)r"e o% re$en)e. On the other
han! &o'a#sat#on emphas#se! the nee! to
m#n#m#se 'oth #ne%%#"#en"y an! "omp#an"e
"ost o% tax system. In the #n#t#a years, the
tax po#"y was !#re"te! to #n"rease the
e$e o% sa$#n&s, trans%er a$a#a'e sa$#n&s
%or #n$estment as en$#sa&e! 'y pan
strate&y an! the nee! to ens)re a %a#r
!#str#')t#on o% #n"ome, to "orre"t
#ne7)a#t#es ar#s#n& %rom the o#&opo#st#"
mar(et str)"t)re, ex"han&e "ontro an!
a!m#n#stere! pr#"e !eterm#nat#on 2>a&"h#
an! Naya(, -..63.

F#rsty, the sae tax #s e$y on "ommo!#t#es
wh#"h #n most "ases, are s)':e"t to ex"#se
!)t#es >a&"h#, 2-..<3. As ex"#se !)ty an!
sae tax are e$#e! 'y the !#%%erent ayers o%
&o$ernment, #t 'e"omes !#%%#")t to
!eterm#ne :)!#"#o)sy the #mpa"t o% these
e$#es on pro!)"t#on, #n$estment an! the
"ons)mers. No attempt to rat#ona#se
"ommo!#ty tax system "an s)""ee! #% the
"entre an! the states a"t #n!epen!enty
w#tho)t "o5or!#nat#on amon& themse$es.
A "osey reate! pro'em #s the taxat#on o%
#np)ts an! "ap#ta &oo!s, 'y the "entra an!
state &o$ernments, thro)&h ex"#se !)ty an!
sae tax respe"t#$ey. The taxat#on o%
#np)ts an! "ap#ta &oo!s "ontr#')te to
"as"a!#n& 2tax on tax3 an! $ert#"a
#nte&rat#on o% %#rms 2Rao an! Rao, ;00?3.

Apart %rom &enerat#n& "as"a!#n& e%%e"t,
sae taxat#on o% #np)ts 'ene%#ts the
"omparat#$ey r#"her states at the "ost o%
poorer states. The sae taxat#on o% #np)ts




aso means that #ts ')r!en %as on
"ons)mers o)ts#!e the state. The tax was
re%)n!e! #% a &oo! was exporte! o)ts#!e
the "o)ntry ')t sae tax on #np)t was not
re'ate!, #n "onse7)en"es the more
!e$eope! states are a'e to !er#$e
a!!#t#ona reso)r"es, 'y tax#n& "ons)mers
#n other states 2Report o% the In!#re"t
Taxat#on En7)#ry Comm#ss#on, -.@@3.
D#%%erent#a rates o% saes tax on the same
set o% "ommo!#t#es #n !#%%erent states o%ten
ea! to )ne"onom#" !#$ers#on o% tra!e an!
pro!)"t#on "entres. It was $ery "ommon
peope ma(e p)r"hase %rom the ow tax
states an! sae them #n h#&her tax states so
on& as the "ost o% transport#n& &oo!s are
ower than the tax !#%%erent#a. Th#s
!#storts nat)ra see"t#on o% pro!)"t#on
"entres 'ase! on &eo&raph#"a a!$anta&e.
S)"h m#sao"at#on o% reso)r"es
)n!erm#nes e"onom#" e%%#"#en"y an!
there'y retar!s !e$eopmenta e%%orts 2Rao
an! Va#an"o)rt, -..63. O$er a !#%%erent
rate o% sae tax #n !#%%erent states 2m)t#5
po#nt, !o)'e5po#nt an! s#n&e5po#nt3 w#th
!#%%erent pro"e!)res an! r)es "a)se
!#%%#")ty %or the tra!ers, "ons)mers an!
tax a)thor#t#es an! wh#"h %)rther ea! to
"orr)pt#on an! #t#&at#on.

Tr)e an! systemat#" e%%orts re&ar!#n& tax
re%orms were starte! #n -..- when mar(et
'ase! e"onom#" re%orms were #n#t#ate! to
p) the e"onomy o)t o% "r#s#s. The Tax
Re%orm Comm#ttee 2TRC -..-3 "ame
%orwar! w#th a new %ramewor( an! "ear
")t roa! map to 'r#n& "han&es #n 'oth
!#re"t an! #n!#re"t taxes as a part o%
str)"t)ra re%orms 'y (eep#n& #n $#ew the
on&o#n& s#t)at#on o% the e"onomy. The
TRC p)t %orwar! many "han&es #n #n!#re"t
tax str)"t)re #(e re!)"t#on #n a ma:or
#n!#re"t taxes #(e ex"#se !)t#es, ")stom
!)t#es )p to a reasona'e extent so that #t
"o)! not ea! to tax e$as#on. It aso
re"ommen!e! that the taxes on !omest#"
pro!)"t#on sho)! 'e %)y "on$erte! #n to
a $a)e a!!e! tax, an! sho)! 'e
#mpemente! thro)&ho)t the "o)ntry #n
"ons)tat#on w#th states.

In many ways the re%orms s#n"e -..-, w#th
emphas#s on s#mp#"#ty an! e%%#"#en"y
ma(e mar(e! !epart)re %rom the past. =ay
stress on s#mp#%#"at#on o% r)es,
re&)at#ons an! pro"e!)res so as to re!)"e
the "omp#an"e "ost an! to ens)re a 'etter
an! transparent tax system. Many "han&es
were #ntro!)"e! to re%orm the tax
a!m#n#strat#on. As #t #s one o% the we




(nown %a"t that In!#an tax a!m#n#strat#on
was "o)nte! one o% the most #ne%%#"#ent
system. Corr)pt#on, re! tape#sm, !eay an!
'y %a$o)r#t#sm are $ery )s)a %eat)res o%
In!#an tax a!m#n#strat#on system e$en
to!ay, ')t the o$era s#t)at#on are %ar
'etter than 'e%ore as a these are the
res)ts o% $ar#o)s tax re%orms #ntro!)"e! #n
In!#a %rom t#me to t#me.
Ex"#se !)ty #s asso"#ate! w#th the
pro!)"t#on o% &oo!s #n In!#a an! #s meant
%or !omest#" "ons)mpt#on. >y the m#!!e
o% -.@0s, the str)"t)re o% ex"#se !)ty was
h#&hy "ompex an! !#stort#onary an! was
a m#x o% spe"#%#" an! A!5Vaorem taxes.
On the ater aone there were ;6 !#%%erent
rates $ary#n& %rom ;A to -00. The tax
GD+ rat#o was 7)#te ow wh#"h are now #n
"om%orta'e pos#t#on. >)t w#th the
#mpementat#on o% the re"ommen!at#ons o%
TRC the re&#me o% ex"#se !)t#es was ma!e
s#mp#%#e! an! rat#ona#se!. >es#!e
re!)"t#on #n n)m'er o% tax rates, the tax
has 'een pro&ress#$ey "on$erte! %rom
spe"#%#" to A!5Vaorem e$y. In -... 5
;000 amost ee$en tax rates were mer&e!
#n to three w#th a han!%) )x)ry #tems. In
;00050- there were %)rther mer&e! #n to a
s#n&e tax rate to 'e "ae! 2CENVAT3
aon& w#th three spe"#a a!!#t#ona ex"#se
!)t#es /A, -<A, an! ;6A %or %ew
"ommo!#t#es.

A ma#n %eat)re o% ex"#se !)ty #s that #(e
"orporat#on tax, a ma:or proport#on a'o)t
60A o% tota "oe"t#on #s pa#! 'y p)'#"
se"tor enterpr#ses an! #t #s o% %)"t)at#n&
nat)re year a%ter year. The %)"t)at#on #s
!)e to the %)"t)at#ons #n a!m#n#stere!
pr#"e on #tems s)"h as stee, "oa, m#nera
an! petroe)m pro!)"ts et". Contr#')t#on
%rom ")stom !)ty was not eno)&h #n the
#n#t#a years o% #n!epen!ent In!#a !)e to
$ar#o)s 7)ant#tat#$e restr#"t#ons on
#mports. The C)stoms A"t was %orm)ate!
#n -.<; to pre$ent #e&a #mports an!
exports o% &oo!s.

T# -..05.- the tar#%% str)"t)re was h#&hy
"ompex $ary#n& %rom 0A to 600A. +ea(
rate was 'ro)&ht !own %rom 600 to ?0A
'y -..?5.<. In!#a has aso #%te!
7)ant#tat#$e restr#"t#ons on #mports )n!er
BTO o'#&at#ons. The pea( rate o% #mport
!)ty has 'een 'ro)&ht !own o$er the years
howe$er the tar#%% rate #s st# h#&h an!
In!#an #n!)stry #s h#&hy prote"te!. B#th
re&ar! to #mport !)ty, re%orms pro"ess
re7)#re! %)rther re!)"t#on an! )n#%#"at#on
o% rates. E7)ay #mportant #s to %a"e o)t




most o% the "on"ess#ons an! exempt#ons
a$a#a'e aon& w#th ex"#se !)ty an!
#mport !)ty wh#"h "reates a ro)n!
"ompex#t#es an! ero!e! the tax 'ase.
9nt# ;004 In!#a,s "onst#t)t#on !#! not
exp#"#ty re"o&n#8e an! ass#&n to any e$e
o% &o$ernment the power to tax ser$#"es.
Cowe$er, s#n"e a res#!)ary tax powers
were ass#&ne! to the "entra &o$ernment,
#n -..6, th#s a)thor#ty 'e"ame the 'as#s %or
e$y#n& a tax on see"te! ser$#"es.

At the state e$e, "on$ert#n& the sae tax #n
to VAT has 'een "ompete! 'y aow#n&
%or #np)t tax "re!#t not ony %or #ntra5state
sae an! p)r"hase ')t aso %or #nter5state
transa"t#ons. The o"a e$e tax re%orms
#(e a'o#t#on o% o"tr#o an! other
s)r"har&es ha$e 'een a'o#she! as there #s
no pa"e %or these a&e o! pra"t#"es #n the
mo!ern tax system. More has 'een !one to
re%orm the tax a!m#n#strat#on so as to
#n"rease the net tax re$en)e an! re!)"e the
"omp#an"e "osts an! to ma(e #t more
transparent an! tax payer %r#en!y. So
many new steps #(e "omp)ter#sat#on o%
tax ret)rns, stren&then the #n%ormat#on
system, on#ne Tax A""o)nt#n& System
2O=TAS3, the C)stoms e5"ommer"e
&ateway 2ICEGATE3, C)stoms
Ee"tron#" Data Inter"han&e System
2ICES3 has hepe! to #mpro$e the
#n%ormat#on system an! spee! )p "earan"e
pro"ess.

9n!er the "onst#t)t#on the state
&o$ernment has the power to e$y an!
"oe"t taxes on sae or p)r"hase o% &oo!s
w#th #n #ts terr#tory a""or!#n& to the r)es
%rame! 'y #t. As per the CST 2Centra Sae
Tax3 A"t -.?<, th#s pre$a#e! pr#or to the
#ntro!)"t#on o% VAT !#%%erent states )se!
to e$y !#%%erent rate o% tax on w#!e ran&e
o% &oo!s w#th !#$erse pro"e!)re an! r)es
%or #ts "oe"t#on. Cowe$er the "entra
&o$ernment has #nter$ene! 'y pre$ent#n&
the states tax#n& #n the "o)rse o% #nter5state
tra!e an! "ommer"e.

Ta'e -D Tax Re$en)e o% State Go$ernments 2#n >##on Rs.3




Eears
Tota
Re$en)e
re"e#pts
Tax
Re$en)e
Saes
Tax
State
Ex"#se
D)ty
Share
#n
Centra
Taxes
-..05
.- <<6.<@ 66?./< -@<.<@ -6;.6;
-..-5
.; /0?.4< ?;<.06 ;-0.<6 ?6.4. -</.6/
-..;5
.4 .-0.. <06.6/ ;44.6. <;.<? ;0?./
-..45
.6 -06...@ </;.<. ;@;.;@ @0.0. ;;4..?
-..65
.? -;04.04 @//.4; 4-/./4 @6.4. ;6/./?
-..?5
.< -46?.0@ .0/.0; 4<@.06 /-./ ;.0.6/
-..<5
.@ -?00.6- 4<@.06 6;-.-; /4.?/ 4?0.4/
-..@5
./ -<</.; --/<... 6</.-4 -0@.?< 606.--
-../5
.. -@;@./@ -;?4.;/ ?-0.04 -;/.<- 4.6.;-
-...5
00 ;0;..;@ -64;.@; ?...?? -66.<< 66-.;-
;0005
0- ;4;?.0. -<64.-6 <...@< -?6.@. ?0@.46
;00-5
0; ;6.6.;; -@?6.-? @4-./- -<?.06 ?;;.-?
;00;5
04 ;@4<.@6 -.46.@6 /;-.?? -/;.</ ?<<.??




;0045
06 40.-./@ ;;--.-@ .4-.@; -/..;/ <@0./
;0065
0? 4<4?.-; ;<0?.@@ ---?.?6 ;-0..< @/?.?
;00?5
0< 64-0.;- 40<4.4; -;/@.<. ;?0.4< .60.;6
;00<5
0@ ?40?.?< 4@;/.6- -?4?.@4 ;.4.-< -;0;..4
;00@5
0/ <;4@.6/ 64@..6/ -@46.;; 46-.;@ -?-6.0;
;00/5
0. <.6<.?@ 6/;../4 -./4.;@ 60... -<-0.?;
;00.5
-0 @</-.4< ?;/0.@? ;;0<.66 6/4.@? -<?0.-6
;0-05
-- .4?4.6@ </0-../ ;@//.4/ ?.-.<. ;-.6./.
;0--5
-; --6-6.<. /---..; 46-../? @0/.-- ;?.@.4@
;0-;5
-4 -440..@/ .6@; 6046.0; /;@.66 40;-.//

So)r"eD >)!&et !o")ments o% the State Go$ernments.





Ta'eD ; Tax Re$en)e o% Centra Go$ernments 2#n >##on Rs.3

Eear Tax Re$en)e D#re"t Tax In!#re"t
Tax
A Share o%
In!#re"t taxes
Ex"#se
D)ty
C)stom
D)ty
-..05
.- 6;..@/ <..04 4<0.@? /4A -6- ;0<.66
-..-5
.; ?00.<. -0-.04 4...<< /0A -<0.-@ ;;;.?@
-..;5
.4 ?60.66 -;0.@? 6-..<. @/A -<4.<@ ;4@.@<
-..45
.6 ?46.6. -;?.;; 60..;@ @@A -@;.;6 ;;-..4
-..65
.? <@6.?6 -/6.0. 6.0.6? @4A ;-0.<6 ;<@./.
-..?5
.< /-..4. ;;;./@ ?.<.?; @;A ;;-.@< 4?@.?@
-..<5
.@ .4@.0- ;?4.@6 </4.;@ @;A 6;/.?- 4;?.@/
-..@5
./ .?<.@; ;@-.@; </? @-A ;??.-< 60-..4
-../5
.. -06<.?; 4;-.; @;?.4; <.A ;/?./- 60<.</
-...5
00 -;/;.@- 6-6.4< /</.4< <@A 46..66 6/6.-.
;0005
0- -4<<.?/ 6.<.?- /@0.0@ <4A 6.@.?/ 46-.<4
;00-5
0; -44?.4; 6@@.04 /?/.;/ <6A ?66.<. ;/4.6
;00;5
04 -?/?.66 <-<.-; .<..4; <-A <;4.// 4-/../




;0045
06 -/<../; @<?.. --04..; ?.A @0;.6? 46?./<
;0065
0? ;;6@../ .?..66 -;//.?6 ?@A @@;.6- 6-/.--
;00?5
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;00/5
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;00.5
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So)r"eD >)!&et !o")ments o% the Go$ernment o% In!#a an! F#nan"e A""o)nts 2$ar#o)s
#ss)es3.

%#&$e Added T#': Ce("r#& #(d ")e S"#"e
&eve&
+r#or to tax re%orms #n#t#ate! #n -..-, sae
tax was "hara"ter#se! 'y a m)t#p#"#ty o%
tax rate an! exempt#ons, a"( o% )n#%orm#ty
a"ross states, ar&e n)m'ers o% "on"ess#ons
an! exempt#ons an! !#%%er#n& pro"e!)re
%or tax "oe"t#on. Many states mo!#%#e!
the#r sae tax re&#me to a)n"h a state e$e
VAT )n!er the s"heme prepare! 'y




Empowere! Comm#ttee %or th#s p)rpose.
VAT #s wor(#n& #n more than -?0
"o)ntr#es o% the wor!. *eep#n& #n $#ew
the #mportan"e o% VAT an! #ts wor!w#!e
a""eptan"e, In!#a too !e"#!e! to a!opt an!
#mpement the VAT thro)&ho)t the
"o)ntry. In In!#a, VAT was %#rst
#ntro!)"e! at the Centra e$e %or a
n)m'er o% see"te! "ommo!#t#es #n terms
o% MODVAT w#th e%%e"t %rom Mar"h -,
-./<, an! #n a step5'y5step manner %or a
"ommo!#t#es #n terms o% CENVAT #n
;00;504. At the state e$e VAT was
#ntro!)"e! #n ;00? an! Caryana was the
%#rst state to a!opt an! #mpement the
VAT. A%ter o$er"om#n& the #n#t#a
!#%%#")t#es, a the States an! 9n#on
Terr#tor#es ha$e now #mpemente! VAT.
In#t#ay most o% the states were oppos#n&
the a!opt#on an! #mpementat#on o% VAT
'e"a)se o% "erta#n e"onom#" an! po#t#"a
reasons.

A"t)ay the #ntro!)"t#on o% VAT at the
State e$e has 'een a more "haen&#n&
exer"#se #n a %e!era "o)ntry #(e In!#a,
where ea"h State, #n terms o%
Const#t)t#ona pro$#s#on, #s so$ere#&n #n
e$y#n& an! "oe"t#n& State taxes. >e%ore
#ntro!)"t#on o% VAT, #n the saes tax
re&#me there was no harmony #n the rates
o% saes tax on !#%%erent "ommo!#t#es
amon& the States. Not ony were the rates
o% saes tax n)mero)s 2o%ten more than ten
#n se$era States3, ')t !#%%erent %rom one
another %or the same "ommo!#ty #n
!#%%erent States. There was aso an
)nheathy "ompet#t#on amon& the States #n
terms o% saes tax rates F so5"ae! Grate
warH F o%ten res)t#n& #n, re$en)e5w#se, a
"o)nter5pro!)"t#$e s#t)at#on.

The exper#en"e o% #mpement#n& VAT was
7)#te en"o)ra&#n& an! was we"ome! 'y
a sta(e ho!ers. Insp#re! 'y the s)""ess o%
VAT the &o$ernment o% In!#a #n!#"ate! #n
Fe'r)ary ;00@ that the "o)ntry sho)!
mo$e towar!s a nat#ona e$e Goo!s an!
Ser$#"e Tax 2 GST3 at )n#%orm rate
thro)&ho)t the "o)ntry, "o$er#n& 'oth
&oo!s an! ser$#"es as name s)&&ests. An
anno)n"ement was ma!e 'y Sh. +.
Ch#!am'aram, the then 9n#on F#nan"e
M#n#ster o% In!#a, #n the Centra >)!&et
2;00@F;00/3 to the e%%e"t that GST wo)!
'e #ntro!)"e! %rom Apr# -, ;0-0 an! that
the Empowere! Comm#ttee o% State
F#nan"e M#n#sters, on h#s re7)est, wo)!
wor( w#th the Centra Go$ernment to
prepare a roa! map %or the #ntro!)"t#on o%




GST #n In!#a. A%ter th#s anno)n"ement, the
Empowere! Comm#ttee ha! set )p a 1o#nt
Bor(#n& Gro)p wh#"h has s)'m#tte! #ts
report on a mo!e an! roa! map %or GST.

Cowe$er some states are st# oppos#n&
GST !)e to "erta#n e"onom#" an! po#t#"a
reasons. These are o%ten $o"a#se! 'y
states wh#"h has a poor "ons)mpt#on 'ase
an! who stan! to ose on or#&#n5'ase!
taxat#on o% reso)r"es wh#"h they presenty
re"e#$e 'ase! on sae to other states. It
"annot 'e !en#e! there w# 'e some osers
#mme!#atey )pon the #mpementat#on o%
the GST an! sh#%t#n& %rom or#&#n 'ase to
!est#nat#on 'ase. It #s there%ore, #mperat#$e
that the "entre sho)! "ome %orwar! w#th a
'roa! ass)ran"e %or the pro$#s#on o%
"ompensat#on %or os#n& states as
s)&&este! 'y the empowere! "omm#ttee.
Th)s a these #ss)es reat#n& to the
#mpementat#on o% GST nee! to 'e
a!!resse! a!e7)atey.

GST w# repa"e the ex#st#n& VAT 'y
mer&#n& most o% #n!#re"t taxes )n!er a
s#n&e name wh#"h w# 'e "ae! as GST,
&oo!s an! ser$#"e tax wh#"h #s yet to 'e
#mpemente! most pro'a'y #n the next
"om#n& year. GST #s #(ey to 'e VAT an!
w# 'e "oe"te! on $a)e a!!#t#on o%
e$ery transa"t#on %rom pro!)"t#on to
!#str#')t#on. GST w# 'e e$#e! on a s#n&e
rate thro)&ho)t the "o)ntry on 'oth &oo!s
an! ser$#"es. As GST #s an #n!#re"t tax, the
%) an! %#na ')r!en o% the tax w# 'e on
the "ons)mer. One o% the !#st#n"t %eat)re
o% GST #s that more an! more ser$#"es
w# 'e 'ro)&ht )n!er the tax net wh#"h
were not "o$ere! ear#er.

*ro+osed GST ,ode& or I(di#
GST #s s#m#ar to VAT an! "an 'e terme!
as Nat#ona =e$e VAT on &oo!s, w#th one
!#%%eren"e, #n GST not ony &oo!s ')t
ser$#"es are aso #n")!e! an! rate o% tax
on 'oth &oo!s as we on ser$#"es w# 'e
the same. Most "o)ntr#es ha$e a )n#%#e!
GST system I.e a s#n&e rate o% tax
app#"a'e thro)&ho)t the "o)ntry.
Cowe$er #n many %e!era "o)ntr#es #(e
>ra8# an! Cana!a a !)a GST system #s
wor(#n& where GST #s e$#e! 'y 'oth
"entra an! state &o$ernments. Amost a
"o)ntr#es o% the E)rope ha$e aso a!opte!
a !)a GST system. A!opt#on o% GST #s
one o% the pre5"on!#t#on %or a "o)ntry who
wants to :o#n the 2E93 E)ropean 9n#on.
As %ar In!#a #s "on"erne! we ha$e a!opte!
a !)a GST system 'e"a)se o% the %e!era




nat)re o% o)r "onst#t)t#on #n wh#"h the
power has 'een !#$#!e! 'etween the "entre
an! states. Th)s #n In!#a )n!er the !)a
GST system 'oth "entre an! states w#
ha$e the power to e$y taxes on the sae o%
&oo!s an! ser$#"es.

Key Fe#"$res o GST i( I(di#

In In!#a the GST w# ha$e two
"omponents one #s e$#e! 'y the "entre,
herea%ter re%erre! to as 2CGST3 "entra
&oo!s an! ser$#"e tax an! other #s e$#e!
'y the state herea%ter re%erre! to as state
&oo!s an! ser$#"e tax 2SGST3. Cowe$er
the rate o% CGST an! SGST wo)! 'e
!e"#!e! ater on 'y (eep#n& #n $#ew the
re$en)e "ons#!erat#on an! a""epta'##ty.
The "om'#ne! rate #s expe"te! to 'e -6 to
-< per "ent. C)rrenty #t #s the s)':e"t
matter o% !#s")ss#on 'e%ore the empowere!
"omm#ttee 2"omm#ttee o% state %#nan"e
m#n#sters3. CGST an! SGST wo)! 'e
app#"a'e to a transa"t#ons o% &oo!s an!
ser$#"es ex"ept a sma ne&at#$e #st wh#"h
are (ept o)ts#!e the p)r$#ew o% GST an!
the many transa"t#ons wh#"h are 'eow the
pres"r#'e thresho! #m#t. Commo!#t#es
amon& ne&at#$e #st are a"oho, "#&arettes,
"#&ar, to'a""o, =+G, +etro, an! D#ese et".
A"oho#" 'e$era&es wo)! 'e (ept o)t o%
the p)r$#ew o% GST. Saes TaxIVAT "an
'e "ont#n)e! to 'e e$#e! on a"oho#"
'e$era&es as per the ex#st#n& pra"t#"e.
Ex"#se D)ty, wh#"h #s presenty 'e#n&
e$#e! 'y the States, may not 'e aso
a%%e"te!. To'a""o pro!)"ts wo)! 'e
s)':e"te! to GST w#th ITC. Centre may 'e
aowe! to e$y ex"#se !)ty on to'a""o
pro!)"ts o$er an! a'o$e GST w#tho)t
ITC. Atho)&h on most o% &oo!s an!
ser$#"es the rate o% tax rema#ns the same
')t as per the ne"ess#ty o% the nat#on some
&oo!s or ser$#"es "an 'e !e"are! as
Gexempte!H or 8ero rate!.

Many Taxes has 'een s)'s)me! )n!er
Goo!s an! Ser$#"e Tax. Centra Ex"#se
D)ty, A!!#t#ona Ex"#se D)t#es,
CENVAT, A!!#t#ona C)stom D)t#es
pop)ary (nown as Co)nter$a##n& D)ty,
Ser$#"e tax, a "entra "esses an!
s)r"har&es has 'een s)'s)me! #n to
CGST. Bh#e VAT, CST, Sae Tax,
+)r"hase tax, =)x)ry Tax, =ottery Tax,
Enterta#nment Tax, Taxes on 'ett#n& an!
&am'#n&, Ee"tr#"#ty !)ty, O"tro# , a
state "esses an! s)r"har&es has 'een
mer&e! #n to SGST. S#n"e GST #s e$#e!
on !omest#" "ons)mer o% %#na &oo!s an!




ser$#"es so 8ero rate o% exporte! &oo!s an!
ser$#"es are poss#'e. S#m#ar 'ene%#ts may
'e &#$en to Spe"#a E"onom#" Jones
2SEJs3. Cowe$er, s)"h 'ene%#ts w# ony
'e aowe! to the pro"ess#n& 8ones o% the
SEJs. No 'ene%#t to the saes %rom an SEJ
to Domest#" Tar#%% Area 2DTA3 w# 'e
aowe!.

Imports w# 'e e$#e! the same taxes as
!omest#" &oo!s an! ser$#"es a!her#n& to
the !est#nat#on pr#n"#pe. In "ase o%
#mporte! &oo!s an! ser$#"es the ")stom
!)t#es w# rema#n o)ts#!e the p)r$#ew o%
GST. Th)s the app#"a'e 'as#" ")stom
!)t#es w# 'e "ont#n)e to 'e e$#e! on
#mporte! &oo!s an! ser$#"es. In a!!#t#on
'oth CGST an! SGST are expe"te! to 'e
e$#e! on #mporte! &oo!s an! ser$#"es.
The #n"#!en"e o% tax w# %oow the
!est#nat#on pr#n"#pe an! the tax re$en)e #n
"ase o% SGST w# a""r)e to the State
where the #mporte! &oo!s an! ser$#"es are
"ons)me!. F) an! "ompete set5o%% w#
'e a$a#a'e on the GST pa#! on #mport o%
&oo!s an! ser$#"es.
In "ase o% #ntra5state transa"t#ons 2w#th #n
the state3 the seer has to "oe"t 'oth
CGST K SGST %rom the p)r"haser an!
amo)nt o% CGST has to 'e !epos#t #n the
a""o)nt o% "entra &o$ernment an! the
amo)nt o% SGST has to 'e !epos#t #n the
a""o)nt o% state &o$ernment.
In "ase o% #nter5state transa"t#ons 2amon&
!#%%erent states3 "entre wo)! e$y IGST
Inter State Goo!s an! Ser$#"es Tax wh#"h
wo)! 'e e7)as to the 2CGSTLSGST3 on
a #nter5State transa"t#ons o% taxa'e &oo!s
an! ser$#"es. Cowe$er the amo)nt o%
SGST wo)! 'e trans%er to the "ons)mer
state #.e p)r"has#n& state. +resenty the
#nter5state transa"t#ons are s)':e"t to CST
"entra sae tax wh#"h #s or#&#n 'ase!.
Cowe$er the GST w# wor( )n!er a
!est#nat#on 'ase I "ons)mpt#on 'ase!
"on"ept an! hen"e tax on #nter5state
transa"t#ons w# a""r)e to the !est#nat#on
state.

Goo!s an! Ser$#"e Tax #s a tax on &oo!s
an! ser$#"es, e$#a'e on ea"h po#nt o% sae
or pro$#s#on o% ser$#"e, #n wh#"h at the
t#me o% sae the seer or ser$#"e pro$#!er
"an "a#m the #np)t "re!#t o% tax wh#"h he
has pa#! wh#e p)r"has#n& the &oo!s or
pro")r#n& the ser$#"e.
Bhen VAT #s #ntro!)"e! #n pa"e o%
Centra ex"#se !)ty, a set5o%% #s &#$en #.e. a
!e!)"t#on #s ma!e %rom the o$era tax
')r!en %or #np)t tax. In the "ase o% VAT #n




pa"e o% saes tax system, a set5o%% #s &#$en
%rom tax ')r!en not ony %or #np)t tax pa#!
')t aso %or tax pa#! on pre$#o)s
p)r"hases. B#th VAT, the pro'em o% Gtax
on taxH an! reate! ')r!en o% "as"a!#n&
e%%e"t #s th)s remo$e!. +ro$#s#on o% #np)t
tax "re!#t %rom the o$era tax ')r!en has
'een aowe! #n "ase o% GST too. A"t)ay
pr#or to the #ntro!)"t#on o% VAT at the
"entra an! state e$e there was a ')r!en
o% m)t#pe 5taxat#on. >e%ore any
"ommo!#ty was pro!)"e #np)ts were %#rst
taxe! an! then the "ommo!#ty &ot
pro!)"e! w#th #np)t tax oa!, o)tp)t was
taxe! a&a#n. Th#s was "a)s#n& a ')r!en o%
m)t#pe taxat#on #.e. tax on tax w#th
"as"a!#n& e%%e"t. >)t w#th the #ntro!)"t#on
o% VAT an! now GST a set o%% was
aowe! #.e. the !e!)"t#on "an 'e ma!e
%rom the o$era tax ')r!en %or #np)t tax.
Cowe$er "ross )t##8at#on o% ITC 'etween
the Centra GST an! the State GST wo)!
not 'e aowe! ex"ept #n the "ase o% #nter5
State s)ppy o% &oo!s an! ser$#"es )n!er
the IGST.

The a!m#n#strat#$e #a'##t#es re&ar!#n& the
CGST w# 'e on "entra &o$ernment
a)thor#t#es wh#e #n "ase o% SGST w# 'e
on the respe"t#$e state &o$ernment
a)thor#t#es. The taxpayers wo)! nee! to
s)'m#t per#o!#"a ret)rns #n "ommon
%ormat as %ar as poss#'e to 'oth "entra
an! state GST a)thor#t#es. GST w# 'e
e7)ay app#"a'e to the ser$#"e pro$#!ers
too. 9n#(e the transa"t#ons %rom the sae
tax re&#me to the VAT, where ony
')s#ness !ea#n&s #n &oo!s were a%%e"te!
')t #n "ase o% GST , as the name s)&&este!
'oth &oo!s an! ser$#"es pro$#!ers wo)!
'e #mpa"te!. Th)s e$en the p)re ser$#"e
pro$#!ers nee! to pan %or the transa"t#on
to the GST. In!#a #s one o% the %astest
emer&#n& "o)ntr#es #n the ser$#"e se"tor
an! th)s tra!e #n ser$#"es "an 'e #mpro$e!
'y rat#ona#sat#on o% taxes.

It #s expe"te! that GST re&#me wo)!
ower the pr#"es o% &oo!s an! ser$#"es.
GST #s expe"te! to %oster the e"onom#"
e%%#"#en"y 'y ower#n& the "ost o% s)ppy
o% &oo!s an! ser$#"es 'y way o% #np)t
"re!#t me"han#sm an! re!)"#n& the
"as"a!#n& e%%e"ts. F)rther #n "ontext o%
In!#a #t #s expe"te! that a&&re&ate
#n"#!en"e o% !)a GST w# 'e ower than
the present #n"#!en"e o% the m)t#pe
#n!#re"t taxes #n %or"e. The "om'#ne! GST
#s expe"te! to 'e #n the ran&e o% -65-<A.
To!ay ser$#"es are taxe! at -0A an! the




"om'#ne! #n"#!en"e o% #n!#re"t taxes on
most o% &oo!s #s aro)n! ;0A. At present
the &oo!s an! ser$#"es are taxe! separatey
')t #n GST the !#%%eren"e w# 'e $an#she!.

In o)r "o)ntry the &oo!s are taxa'e s#n"e
on& ')t the same "annot 'e sa#! %or
ser$#"es. T# -..6 there was no tax on
ser$#"es an! th#s tax was #ntro!)"e! 'y the
then F#nan"e M#n#ster Dr. Manmohan
S#n&h. The o&#" 'eh#n! the tax was G#%
&oo!s are taxa'e why not ser$#"esMH
There #s no separate ser$#"e tax a"t an!
ser$#"e tax !epartment #n In!#a an! taxes
on ser$#"es #n o)r "o)ntry are &o$erne! 'y
some o% the pro$#s#on o% F#nan"e A"t -..6
an! ser$#"e Tax R)es -..6 an! the
!epartment "on"erne! #s Centra Ex"#se
Department.

T)e S"#"es o E-o(o,y #(d GST

Bhen GST w# 'e #ntro!)"e! #t w#
repa"e the most o% taxes. T# !ate the
"entre has the monopoy power to tax
ser$#"es an! state ha$e the power to tax the
sae o% &oo!. Now states w# ha$e to
s)rren!er the#r power to tax the &oo!s an!
share the "entra tax an! "erta#ny th#s w#
'e a $ery to)&h 'ar&a#n#n& %or them. The
states are !eman!#n& that they sho)! 'e
&#$en power to tax the ser$#"es aso ')t #n
GST they w# a"t)ay ose the#r power to
tax e$en the &oo!s. The tax w# 'e
"oe"te! at the "entra e$e an! then #t
w# 'e share! 'y the states. Th)s GST w#
")rta# the power o% states to tax the &oo!s
an! ser$#"es an! th#s ")rta#ment w#
a%%e"t the#r e"onomy an! a)tonomy an!
that,s why many states are not #n %a$o)r o%
GST. Th#s w# 'e a ma:or h)r!e #n the
way o% "entra &o$ernment wh#e
#ntro!)"#n& the GST.

Co(-&$sio(s

There has 'een s#&n#%#"ant pro&ress #n the
tax re&#me s#n"e #mpementat#on o%
mo!#%#e! $a)e a!!e! tax 2MODVAT3
-./< an! Va)e a!!e! tax 2VAT3 ;00?.
En"o)ra&e! 'y the s)""ess%)
#mpementat#on o% VAT the Go$ernment
o% In!#a now !e"#!e! to a)n"h GST wh#"h
wo)! repa"e a n)m'er o% #n!#re"t taxes
presenty 'e#n& e$#e! 'y "entre an! state
&o$ernments an! #s #nten!e! to remo$e
"as"a!#n& e%%e"ts o% taxes an! wo)!
pro$#!e a "ommon nat#ona mar(et %or
&oo!s an! ser$#"es. The propose! "entra
an! state GST wo)! 'e e$#e! on a




transa"t#ons #n$o$#n& s)ppy o% &oo!s an!
ser$#"es ex"ept those that are exempt or
(ept o)t o% the p)r$#ew o% the GST. I%
GST #s to 'e a s)""ess, there sho)! 'e
)n#%orm#ty o% approa"h a"ross a states as
we as stron& !#s#n"ent#$es %or non5
"omp#an"e w#th a&ree! %ramewor(.
The GST at the Centra an! the State e$e
are expe"te! to &#$e more re#e% to
#n!)stry, tra!e, a&r#")t)re an! "ons)mers
thro)&h a more "omprehens#$e an! w#!er
"o$era&e o% #np)t tax set5o%% an! ser$#"e
tax seto%%, s)'s)m#n& o% se$era taxes #n
the GST an! phas#n& o)t o% CST.
Responses o% #n!)stry an! aso o% tra!e
ha$e 'een #n!ee! en"o)ra&#n&. Th)s GST
o%%ers )s the 'est opt#on to 'roa!en o)r tax
'ase an! we sho)! not m#ss th#s
opport)n#t#es to #ntro!)"e #t when the
"#r")mstan"es are 7)#te %a$ora'e an!
e"onomy #s en:oy#n& stea!y &rowth w#th
ony m#! #n%at#on.

Reere(-es
Ahma!, Eh%#sham, K Stern, N"hoas,
2-..-3. Theory an! pra"t#"e o% tax re%orm
#n !e$eop#n& "o)ntr#es, Cam'r#!&eD
Cam'r#!&e 9n#$ers#ty +ress.

>a&"h#, A.,K Naya(, +)#n. 2-..63. A
s)r$ey o% p)'#"e %#nan"e an! the pann#n&
pro"essD The In!#an exper#en"e. In
Amaresh >a&"h#, K N#"h#as Stern 2E!s.3,
Tax po#"y an! pann#n& #n !e$eop#n&
"o)ntr#es. Deh#, Ox%or! an! New Eor(D
Ox%or! 9n#$ers#ty +ress.

>a&"h#, A. 2-..<3. GCarmon#8#n& sae
taxes #n a %e!erat#on "ase st)!#esD In!#a
an! Cana!aH, Bor(#n& paper N0. ..
Nat#ona Inst#t)te %or +)'#" F#nan"e an!
+o#"y, New Deh#.

Casane&ra !e 1ants"her, M#(a. 2-..03 .
A!m#n#ster#n& VAT #n. In Ma"om G##s,
Cars5S. Sho)p, Gerar!o5p.S#"at 2E!s3,
Va)e a!!e! taxat#on #n !e$eop#n&
"o)ntr#es. Bash#n&ton,DC. Bor! >an( .

Exe")t#$e S)mmary Report o% Tas( For"e
on Impementat#on o% GST -? De"em'er
;00. Retr#e$e! on - O"to'er ;0-0.

FM Shr# M)(her:ee "as )pon the State
F#nan"e M#n#sters to ma(e a e%%orts to
meet the t#me#nes o% Intro!)"t#on o% GST
'y Apr# ;0-- 9p!ates on Goo!s an!
Ser$#"e Tax 2GST3 -. A)&)st ;0-0.





Rao, M.G. an! Fran"o#s Va#an"o)rt.
2-..63. GS)'nat#ona tax !#sharmony #n
#n!#aD A Comparat#$e perspe"t#$eH,
Bor(#n& paper No. 6I.6, Nat#ona Inst#t)te
o% +)'#" F#nan"e.

Reforming Indirect Taxes in India

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Reforming Indirect Taxes in India

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International Journal of Computing and Corporate Research

ISSN (Online) : 2249!"4#

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