EVOLUTION OF INDIRECT TAX STRUCTURE IN INDIA

The evolution of India’s indirect tax system mirrors its political and economic transformation. Ancient texts like the Arthashastra and Manusmriti show a structured system of customs duties, tolls, and market taxes based on equity and stability. During the medieval period, the Delhi Sultanate and Mughal Empire expanded indirect taxes, though administration remained regionally fragmented. British colonial rule introduced codified customs, excise, and sales taxes mainly for revenue extraction, creating a rigid and complex framework inherited at independence. After independence, constitutional division of taxing powers led to multiple overlapping taxes such as central excise, customs, and state sales taxes, causing cascading effects and high compliance costs. Economic liberalization in the 1990s initiated reforms like service tax, VAT, and CENVAT. These changes culminated in the Goods and Services Tax (GST), implemented in 2017. Despite initial challenges, GST has reduced tax cascading, improved transparency, integrated markets, and strengthened cooperative federalism.