top of page
  • Writer's pictureThe team

How GST travelled on the long road from Rajiv Gandhi to Narendra Modi

The Goods and Services Tax (GST) is finally here. Only a few hours are left before the biggest tax reform in the country is rolled out. But, it has taken about 17 long years for the GSt to take shape.

The GST is a multi-stage and destination-based tax to be levied at every point of value addition. The governments of the big buyer states will have more revenue collection under GST regime.

During the mid 1980s, the central government realised the need to reform the indirect taxation system. First step in this direction was taken by the then Union Finance Minister VP Singh in the Rajiv Gandhi government.


Before Vishwanath Pratap Singh parted ways with Rajiv Gandhi, he as Union Finance Minister introduced Modified Value Added Tax (MODVAT) credit in 1986-87. This was done to avoid multiple taxes accruing to the final prices of goods.

MODVAT allowed traders to set off the taxes or duties paid on raw materials or pre-sale purchases. Though, the concept of the GST or unified taxation regime was still very far, this was a major indirect tax reform. This modest beginning has now finally culminated into the Goods and Services Tax (GST).


PV Narasimha and Manmohan Singh as Prime Minister and Union Finance Minister led India into what was liberalised market zone.

In 1994-95, Manmohan Singh introduced Service Tax payable by the service provider to the government but it was to be passed on to the consumer. Liberalisation has seen a fast growth in the service sector, where government saw immense potential to increase its revenue.

Service tax was introduced with the aim to reduce the tax burden on the core business, trade and industry without impacting government's earnings.


A round of consultation between the then Prime Minister Atal Bihari Vajpayee and his panel of economic advisors which included three former RBI governors IG Patel, Bimal Jalan and C Rangarajan conceptualised the Goods and Services Tax (GST) in 1999.

Vajpayee government set up a committee in 2000 under the then West Bengal finance minister Asim Dasgupta, who was known for his mastery over financial statistics. Asim Dasgupta committee was tasked to devise GST model, provide technological back up for new tax regime and logistics for rolling out the unified taxation system.

Asim Dasgupta-headed panel was an Empowered Committee of finance ministers of nine states. It started working on a new indirect tax.


Five years later, the Value Added Tax (VAT) was rolled out. The GST subsumes VAT as it rolls out on July 1 from midnight.

In 2006, VAT was introduced in all the states except Uttar Pradesh and Tamil Nadu. The then Finance Minister P Chidambaram announced that the state governments suffering revenue loss due to VAT would be compensated for three years.

In 2006-07 Budget, Chidambaram announced introduction of GST from April, 2010. But, the GST was to miss its first deadline by over seven years.

Empowered committee of state finance ministers was set up in 2007 to phase out central sales tax (CST), which began in April 2007 as the CST rate was reduced from 4 per cent to 3 per cent.

By 2008, the GST had started taking shape. Empowered Committee submitted its report spelling out broad structure of the GST. Consensus was arrived that the Centre and states will have separate GSTs. The CST was further reduced by one per cent to 2 per cent.


In 2009, Chidambaram was replaced with Pranab Mukherjee as Union Finance Minister. The GST did make much progress during Mukherjee's tenure as Finance Minister till 2012, when he moved to the Raisina Hill.

However, during Mukherjee's tenure, the empowered committee released the first discussion paper on GST in November, 2009. In 2011, Mukherjee introduced Constitution Amendment Bill (115th) on GST in the Lok Sabha.

The Bill was referred to the Standing Committee of Parliament as the BJP vehemently opposed the proposed GST law. By the time parliamentary panel submitted its report in 2013, Chidambaram was back as Finance Minister.

The Standing Committee on Finance recommended keeping petroleum products under GST's purview, but the empowered committee rejected the suggestion.


The GST Bill of the UPA lapsed with the dissolution of the Lok Sabha in 2014. Soon, a new government was sworn in under Narendra Modi. Arun Jaitley became the Finance Minister.

Jaitley introduced revised GST Amendment Bill in 2015. The Lok Sabha passed the GST Bill. The Rajya Sabha led by Congress and Left Front members forced two amendments in the Bill.

Finally, the GST Amendment Bill got Parliament's nod in August, 2016. The GST roll out was now only a matter of time.

The GST Council was formed. Approval from requisite number of states was secured. In January this year, Arun Jaitley announced that GST would be rolled out on July 1.

The GST Councils held over a dozen meetings to finalise draft GST laws as Central GST (CGST), Integrated GST (IGST), State GST (SGST) and Union Territory GST (UTGST). In March, four key bills - CGST, IGST, UTGST and GST (Compensation to States) Bill was passed by the Lok Sabha. The Rajya Sabha gave its nod a week later.

In May, GST Council unveiled four-slab rates for goods and services new tax regime. The rates were fixed at 5, 12, 18, 28 per cent. Over 80 per cent of goods of mass consumption were kept either untaxed or under 5 per cent slab.

5 views0 comments
bottom of page