Business Standard

It took 3 decades and many hands

- T N C RAJAGOPALA­N

The new goods and ser­vices tax (GST) regime is the cul­mi­na­tion of a process that be­gan in 1985, with the in­tro­duc­tion of the Mod­vat (Mod­i­fied Value Added Tax) scheme for a few items by V P Singh, the then fi­nance min­is­ter (FM). Prior to that, a scheme of set-off was avail­able in a very restricted way. The Mod­vat pro­vi­sions for credit were part of the cen­tral ex­cise rules.

In 1994, the cap­i­tal goods credit scheme was in­tro­duced by Man­mo­han Singh, the then FM. He also started the process of levy­ing ser­vice tax, on three ser­vices, the same year. Over a pe­riod, the Mod­vat scheme was ex­tended to cover all items, bar­ring a few; the cen­tral ex­cise rules were suit­ably mod­i­fied. The ser­vice tax net was also en­larged.

It was Yash­want Sinha who brought about sig­nif­i­cant changes in the cen­tral ex­cise laws -- in­tro­duc­ing new val­u­a­tion rules in 2000, new cen­tral ex­cise rules in 2001 and re­plac­ing the Mod­vat scheme and cap­i­tal goods credit scheme with the Cen­vat (Cen­tral Value Added Tax) scheme. He also al­lowed credit for tax paid on in­put ser­vices, for pay­ment of tax on out­put ser­vices.

A sig­nif­i­cant step was taken by P Chi­dambaram in 2004. He al­lowed in­ter-sec­toral credit i.e al­low­ing man­u­fac­tur­ers to take credit for tax paid on in­put ser­vices and ser­vice providers to take credit for duty paid on in­puts and cap­i­tal goods.

He also car­ried for­ward the ini­tia­tive of Yash­want Sinha and brought all states on board to re­place sales tax with Value Added Tax. He ini­ti­ated the process of tran­si­tion to the GST regime by set­ting up an em­pow­ered com­mit­tee that had all state FMs. The first dis­cus­sion pa­per on GST from this panel was put out in 2009 and formed the ba­sis for all fur­ther progress in the evo­lu­tion of these laws, that now take ef­fect from July 1.

Mean­time, the list of ser­vices on which ser­vice tax is levi­able went on ex­pand­ing. And, in 2012, Pranab Mukherjee, then then FM, in­tro­duced the neg­a­tive list regime -- levy­ing ser­vice tax on all ser­vices ex­cept those on the lat­ter list. He also en­listed Nan­dan Nilekeni to build the in­for­ma­tion tech­nol­ogy plat­form – GST Net­work - that will be crit­i­cal for the new tax’s im­ple­men­ta­tion.

The present regime de­cided on suit­able com­pro­mises to bring in the Con­sti­tu­tional amend­ment and forge the needed con­sen­sus among FMs of states and Cen­tre to en­sure pas­sage of the leg­is­la­tions and con­ver­gence on rules, tax rates and ex­emp­tions. Be­fore bring­ing in the GST laws, Arun Jait­ley and his team en­gaged in wide­spread con­sul­ta­tion with all stake­hold­ers

Do­main ex­perts like L K Jha, Raja Chel­liah, Amaresh Bagchi, Govinda Rao and Vi­jay Kelkar headed com­mit­tees that gave crit­i­cal in­puts for most in­di­rect tax re­forms. So did Asim Das­gupta, Sushil Modi, Amit Mi­tra and K M Mani, who as heads of the Com­mit­tee of State FMs played very im­por­tant roles in bring­ing about con­sen­sus on many is­sues.

So, even as we cel­e­brate the ad­vent of GST, let us thank­fully ac­knowl­edge the out­stand­ing con­tri­bu­tion of these key per­sons, and many oth­ers in the back­ground, who have made it pos­si­ble.

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