HISTORY OF TAX REGIME FROM 1870 TO UPCOMING GST

Speech delivered by Shri. V. S. Krishnan, Chief Commissioner, Central Excise Zone I and Service Tax, Mumbai on the occasion of 71^st Central Excise day.

Celebration of the Central Excise day function started since 1994 as represented by the then All India Secretary General Shri. R. C. Sharma, first at Mumbai then thereafter all over the country.  But the speech delivered earlier by the dignitaries was more of ritualistic nature than factual.  The following speech is based on the facts and road map towards new tax regime.  Hope viewers will appreciate.

Dear ……….

            Central Excise duty is an important source of revenue for the Union Government accounting for more than 15% of the total estimated revenue collection of 13 lakh crores for 2014-15. The Central Excise duty has a long history dating back to the Mauryan Era.  In 1870, excise duty was levied on salt for the first time. This was followed by levies on cotton textiles in 1884, petroleum (motor spirit) in 1920, kerosene in 1922, silver in 1930 (unimportant after the formation of Burma in 1933), sugar and steel ingots in 1934, tyres in 1941, manufactured tobacco and vegetable products in 1943 and coffee and tea in 1944.  These excise levies collected under separate enactments were consolidated and brought under a single legislation called the Central Excise and Salt Act, 1944.  This Act received the formal assent of the then Viceroy of India on February 24^th, 1944, and this day is being celebrated as Central Excise Day.

            The Central Excise Department has over the years re-invented itself with the evolution of the economy.  The first major step was taken in 1969 with the introduction of the Self Removal Procedure, which was followed by the introduction of Modvat Credit system in 1986, wherein the cascading effect of tax on tax was offset by allowing credit for duty paid on inputs.  This was followed by the introduction of Service Tax in 1994, which was the pre-cursor to the idea that Indirect Taxes should be levied on all value-additions and that hair clips must be treated on par with haircuts.  This in turn was followed by the introduction of Self Assessment in 1996.  These measures have helped in shaping a Modern Tax Administration. 

            One of the principles underpinning Indirect Tax Reforms is that the Government must not use Central Excise duty as an instrument to achieve multiple socio- economic objectives as the proliferation of objectives diffuses the focus, complicates the tax procedures and creates administrative irritants.  Therefore, in the 1990s, the Government, based on the recommendations of the Chellaiah Committee reduced the number of duties from 22 to 3 and phased away a large number of end-use exemptions.  While liberalizing the tax regime, Central Board of Excise & Customs introduced a Modern Audit System in Nov-1999 in consonance with best international practices.

            Today, the Department is on the cusp of the most important tax reform, in post Independent India, which is the introduction of the GST.  Under this tax regime, both the Centre and the State will levy taxes on the same tax base covering the whole value chain from raw material to retail.  All major Central and State Indirect Tax levies would be subsumed in the GST and the taxable event would be based on the simple principle of supply of Goods and Services for a consideration.  The GST, which is proposed to be implemented w.e.f.  April 2016 would have the effect of creating an Indian Common Market which would considerably reduce the cost of moving goods and services across the country, thereby stimulating public and private investment.  An historic parallel was the passing of the Inter State Commerce Act of 1887 by the US Congress which streamlined tariffs charged by Railroad companies for movement of goods between States by rail.  This legislation reduced the cost of moving goods across the country and created a trigger movement for the US economy using the scale effect of a huge market.

            While a great growth opportunity beckons, successful implementation of the GST would require building new administrative structures, where Central and State officials can interact on a continuous basis.  The creation of an Empowered Committee of State Finance Ministers was a master stroke for it facilitated the implementation of State VAT in May 2004 and the design of the GST in 2014. We need new administrative structures for implementation of the GST.  One idea is to create  an Empowered Committee of State Chief Secretaries and  Principal Chief Commissioners headed by the Finance Secretary and also comprising of the Secretary(Revenue), Chairman, CBEC and the Member GST. This body, like the Empowered Committee of State Finance Ministers, could be a registered body funded by the Central Government and can use the existing Secretariat of the Empowered Committee of State Finance Ministers, which can be augmented. Similarly, we would also need to create a registered co-ordination body at the State Level comprising of the State Chief Secretary and the Principal Chief Commissioner along-with other officers, who could be co-opted.  These structures need to be created quickly and I would request the Chief Minister of Maharashtra to look at this suggestion and take it up with the Central Government.  Similarly we need to create a Dispute Resolution system which can resolve disputes speedily and ease the cost of doing business in India.  This would certainly give a fillip to the PM’s clarion call of “Make in India”.

            In conclusion I would like to recall the words of Jean Baptist Colbert, Louis XIV’s treasurer and probably the first great tax reformer, who said, “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the smallest amount of hissing.”  The GST by bringing in fairness in taxation can perhaps maximize the plucking while minimizing the hissing.

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