GST: India's 'Good and Simple Tax' comes into effect

India saw the launch of its most ambitious tax reform till date with the launch of the Goods and Services Tax(GST) at a star studded event at the central hall of Parliament at the stroke of midnight.

Prime Minister Narendra Modi today termed the GST as a 'good and simple tax' which will end harassment of traders and small businesses while integrating India into one market with one tax rate.

At a gala event to launch the Goods and Services Tax (GST) at the historic Central Hall of Parliament, Modi said the indirect tax reform is a result of combined efforts of various political parties at different points of time.

GST, he said, is an example of cooperative federalism as the centre and states together thrashed out the new law with consensus.

Besides being a transparent and fair system that will end generation of black money and corruption, GST will promote new governance culture that will end harassment at the hand of tax officials.

Touching upon initial teething troubles that may be witnessed because of unification of more than a dozen central and state levies into one and switching over to a new online return filing system, Prime Minister said even eyes have to adjust for a couple of days when a sight corrective spectacles are worn.

Modi said GST will eliminate the compounding effects of multi-layered tax system.

Calling the GST a "disruptive change", President Pranab Mukherjee tonight said the ambitious central tax is a "tribute" to the maturity and wisdom of India's democracy, as he recalled steps taken during his own tenure as Finance Minister on this key reform measure.

He also said the GST Council should continuously review the implementation and suggest suitable improvements to the new indirect taxation regime.

"The new era in taxation, which we are about to initiate in a few minutes, is the result of a broad consensus arrived at between the Centre and states," Mukherjee said minutes before the GST rollout in his speech at a special function in the central hall of Parliament.

"This consensus took not only time but also effort to build. The effort came from persons across the political spectrum who set aside narrow partisan considerations and put the nation’s interests first. It is a tribute to the maturity and wisdom of India's democracy," he said.

The President termed the Goods and Service Tax (GST) a disruptive change.

"It is also a moment of some satisfaction for me because, as the Finance Minister, I had introduced the Constitution Amendment Bill on March 22, 2011," he said.

"It is similar to the introduction of VAT when there was initial resistance. When a change of this magnitude is undertaken, however positive it may be, there are bound to be some teething troubles and difficulties in the initial stages," he said.

Mukherjee said these issues have to be solved with understanding and speed to ensure that they do not impact the growth momentum of the economy.

"Success of such major changes always depends on their effective implementation. In the months to come, based on the experience of actual implementation, the GST Council and the Central and state governments should continuously review the design and make improvements, in the same constructive spirit as has been displayed till now," he said.

The President said the GST will "also make our exports more competitive and also provide a level playing field to domestic industry to compete with imports."

"Currently due to cascading, our exports still carry some embedded taxes, making them less competitive.

"Similarly, the hidden effect of cascading means that the total tax incidence on domestic industry is not transparent," he said.

Under GST, Mukherjee said the tax incidence will be transparent, enabling full removal of tax burden on exports and full incidence of domestic taxes on imports.

By creating a unified common national market, the GST will act as a major boost to economic efficiency, tax compliance and domestic and foreign investment, the President said.

Mukherjee recalled the proposal to introduce GST was first mooted in the Budget Speech for the financial year 2006 -07.

Observing that the GST will be administered through a modern world-class information technology system, he also recalled that in July 2010, he had set up an Empowered Group for development of IT systems required for the GST regime under the chairmanship of Nandan Nilekani.

He further said, "It is also a moment of some satisfaction for me because as the Finance Minister, I had introduced the Constitution Amendment Bill on March 22, 2011.

"I was closely involved in the design and implementation and had the occasion to meet the Empowered Committee of state finance ministers, formally and informally, as many as 16 times.

"I also met the Chief Ministers of Gujarat, Bihar, Andhra Pradesh and Maharashtra a number of times. I have a vivid recollection of those meetings and the various matters that were raised," Mukherjee said.

He observed that given the magnitude of the task, it was not a surprise that there were many contentious issues.

"Yet, I found both in those meetings and in my many interactions with Chief Ministers, Finance Ministers and officers of states, that most of them had a constructive approach and an underlying commitment to the introduction of GST.

The President said his confidence stood justified when on September 8, 2016, after the Bill was passed by both Houses of Parliament and more than 50 per cent of State Legislatures, he had the privilege of giving assent to the Constitution (One Hundred and First Amendment) Act.

The President further said, "As we usher in the creation of one nation, one tax, one market, let me conclude by calling upon every Indian to extend cooperation in the successful implementation of the new system."