Vol 3 | Issue 3 | July 2016

DIRECTOR’S MESSAGE
GOODS & SERVICES TAX: WILL IT TRANSFORM
INDIAN ECONOMY
Goods and Services Tax (GST) has been in news since
2000 when Prime Minister Mr Atal Bihari Vajpayee appointed
a Committee headed by the then Finance Minister of
Government of West Bengal to design a model for GST. Since
then, it has passed through several stages of deliberations,
debates and diatribes, both inside and outside the Parliament.
On 14th June 2016, in its long and winding journey,
GST reached an important milestone when the Empowered
Committee of State Finance Ministers approved the model GST
Bill and the Ministry of Finance released the draft document for
public debate.
The discussion in electronic and print media suggests
that almost all state governments have arrived at consensus
on several contentious issues, even though enough evidence
exists to the contrary as well.
GST is defined as “any tax on goods and services other than alcohol for human consumption.” It
is expected to subsume all indirect taxes imposed by central and state governments such as central
excise duties, additional excise duties, service tax, custom duties; state taxes like VAT or sales tax,
central sales tax, entertainment tax, entry tax, purchase tax, luxury tax, entry tax etc. In all, it is likely
to replace 17 taxes.
Considering the fact that India is a federal country, the model Bill provides for dual GST wherein
both the centre and states will concurrently levy central and state GST respectively. It is expected that
the base and other essential design features would be common between central GST and state GST.
For inter-state trade, only the central government will be authorized to impose and collect GST and
the proceeds would be shared in accordance with the provisions of the Act, as and when it comes into
existence. The Bill proposes an additional levy of 1% on inter- state trade in goods and services.
The primary purpose of bringing GST is to create a unified All - India market for businesses
engaged in the production, financing and trading of goods and services with a single tax rate, and
providing comfortable business environment to foreign firms which have to incur huge compliance
costs because of multiplicity of taxes, wide variations in tax rates, scale and extent of exemptions etc.
The major benefits of GST will emanate from increase in the size of the market brought about by hassle
free movement of goods transported by road, and streamlining of procedures for payments of GST
and availing tax credits in different locations. In final analysis, GST will contribute significantly towards
making of one India through economic, financial and commercial integration.
It is expected that GST will also help in checking generation of black money in the economy
through plugging of loopholes and effective compliance. The economic and administrative measures
coupled with improved coordination amongst tax authorities would result in raising the rate of
economic growth and employment generation..
At the same time, there are many unanswered questions at this stage: What would be the impact
of GST on inflation? Which sectors and industries are likely to gain? Who will be the losers and why?
How will it influence the smaller firms as against the large firms? What is the rationale of keeping liquor,
tobacco, petroleum, electricity and perhaps real estate out of the ambit of GST?
Answers to these questions are not straight or simple and would unfold themselves several years
after the introduction of GST. It would be a real test of Indian federal structure and the institutions
governing it.
I am sure you will enjoy reading this issue of Samvaad which attempts to address some of these
issues.
Prof. S C Sharma | Director, IBS Gurgaon
Vol. 3 | Issue 3 | JULY 2016 | SAMVAAD 1