Photo taken in Chiang Mai, Thailand
Although it has gone through rationalization and democratization in the first week of September this year, the Goods and Services Tax (GST) system was first launched in July 2017 by the BJP-led NDA government. Since then it has been heralded as the biggest indirect tax reform since independence emerging out of years of discussions, negotiations, compromises and all party consensus. When it replaced multiple state and central taxes with a single unified system under “One Nation, One Tax” system, the leader of opposition Dr. Manmohan Singh congratulated erstwhile Finance Minister Sri. Arun Jaitley for this attainment. It is noteworthy that the government of Congress-led UPA alliance also strived for GST. Beyond the party lines, it was a matter of time when the final negotiations and compromises were made and GST became a reality. The Congress party now claims that it was the government of Congress-led UPA Alliance that formally announced GST in the Lok Sabha on February 28, 2005 and in 2011 the then Finance Minister Pranab Mukherjee brought the GST Bill and the BJP opposed it.
It was obviously astonishing that it took more than 8 years since July 2017 to the 56th GST council meeting in the first week of September 2025 to rationalize GST rates to two slabs of 5 percent and 18 percent by merging the 12 percent and 28 percent rates. Doubts have emerged from several quarters primarily from the Congress Party and regional parties as some see it as a strategy to win upcoming elections in Bihar. Some see it as a desperate move to generate demands in the economy stagnated by household debts and all-time low domestic savings and yet others perceive it as a hedging strategy to float the domestic market in the face of massive US tariffs. The opposition chastens the government for its hesitation to accept its 8 years failure while the government seeks to take mileage out of this by flagging it as a Diwali gift.
Despite the recent criticisms of the Congress Party and regional parties that the incumbent government took such long time to introduce corrections in GST, still doubts persist as to how the GST Council which is a federal body and other parliamentary committees created for this purpose could be hijacked by the BJP-led NDA government and prevented the members of the opposition parties or regional parties from suggesting rationalization and democratization of the tax structure earlier. Further, the quandary remains as to how Prime Minister Narendra Modi went on to announce the (upcoming) reforms in his Independence Day speech ahead of meetings of either the relevant Group of Ministers or the GST Council. Besides, the puzzle remains unresolved as how the Council announced its decisions on the first day of what was supposed to be a two-day meeting.
Revision of Pro-capitalist and Undemocratic Tax Structure
The earlier GST regime affected the farmers and agricultural sector by imposing taxes on at least 36 items of this sector. The pro-capitalist structure of the earlier GST regime was clear as two-thirds of the total GST (64%) came from the poor and middle classes, only 3% GST was collected from billionaires. Initially hailed as a simplified centralized tax structure, GST was gradually marred by frequent rate changes and multiple slabs complicating the system and generating feelings among people that it was more burdensome than the previous system. The undemocratic and hierarchical structure of earlier GST regime was discernible as people not only began to see a surge in the prices of essential commodities, they did begin to express dismay as to why these were taxed so heavily. Under the earlier regime, health and life insurance essentially meant to protect families from financial breakdown were treated as luxuries rather than necessities. Lifesaving drugs were taxed with a 12 percent rate before being granted exemption under the reformed structure.
Despite the grains of truth in the Congress party’s claim that it had demanded GST 2.0 with a simple and rational tax system in its 2019 and 2024 manifestos and it had also demanded simplification of the complex compliances of GST which negatively affected MSMEs and small businesses, all parties bear the responsibilities for allowing such tax structure to run for such a long time.
GST has been hailed as a consensual tax system characterized by cooperative federalism. Measures have been taken to represent all parties and states in Parliamentary committees and GST council to discuss, negotiate and compromise on issues pertaining to GST. Both the Congress and BJP parties with their allies have taken concerted efforts to make GST a reality in the past although it was finalized under the government of BJP-led NDA Alliance. The states have stated their concerns as regards their estimated financial losses from the reformed system but they have given their consent to make this reformed structure a reality with Centre’s assurances of compensation.
Now that the parties are either seeking to take political mileage or getting engaged in mud-slinging on the issue seems to be desperate political moves.
Need for Looking Beyond Politics
The government and opposition parties despite their divergences on who should get credit for tax reforms now need to switch to a strategy of ensuring enforcement of strict monitoring to ensure tax benefits reach the poor. The producers may keep the prices of commodities high despite the tax cuts citing rising input costs. It is germane to ensure that the corporate houses reflect the lower tax rates in consumer prices. Not being buoyed by the declarations of the government, in a democratic polity such as India, people need to be more vigilant and track the prices of essential commodities closely and hold particular companies accountable for their failure to pass on the declared benefits to people especially the poor section of the society.
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