Goods and Services Tax - the politics behind it.

In order to understand the current situation, we need to take a look at the history of taxation in India, particularly, the Excise and sales tax.

1889 saw the first major taxation act happening in India as the Madras Salt Act under which salt and abhkari (intoxicating drinks and drugs) where the first to be taxed as excise. Excise was the first set of taxation that came into being. Sales tax as we know it today can claim a start during the British regime in 1938 when Tobacco was taxed in Bombay. Before independence, the only other product that was sales taxed was motor spirit or Petrol as we call it today.

Post independence and post republic, the sales tax was set aside for the states to have their own revenue and customs and income tax would be revenue for the Central Government. Excise which was already in vogue was retained by the Centre to tax goods such as tobacco. Excise would be imposed on those goods that have a universal ramification across the country.

Soon, the central government introduced the Central Sales Tax to take a share of the sales tax revenue that the states were getting and returned back a part to them. The VAT is brought in by all of the states over a period of time in 1990s and early 2000. When someone says value addition to any product, it happens only through human service or labour or work. There is no other way, one can add value to a product.

But then, Central Government trespassed into the state's domain by introducing a new Service Tax that will be collected as part of the Excise department's brief. Now, the Centre intention to get the lion's share of the goods and services went one step further with the introduction of GST.

Now, if we are going to pay two separate taxes, one to the Central GST account and the other to the State GST account, there is no change for the taxpayer except that he will end up paying more.