GST at 8: A look back and suggestions for the way ahead

On July 1, 2025, India marks eight years since the Goods and Services Tax (GST) came into effect — a landmark reform that subsumed a complex set of indirect taxes into a single, unified tax regime. As one of the most significant economic transformations in independent India, GST has reshaped how businesses operate, how states and the Centre share revenue, and how compliance is enforced in the country’s vast and varied tax landscape.

Before GST, India’s indirect tax structure was fragmented: Value Added Tax (VAT), Central Excise, Service Tax, Entry Tax, and a number of cesses coexisted with overlapping jurisdictions and cascading tax effects. GST sought to correct this by subsuming multiple legislations into one unified law, offering a destination-based tax.

Implemented through a constitutional amendment, legislation created GST Council — a federal body ensuring cooperative decision-making between the Centre and the states. Over the years, the Council has convened more than 50 times, deliberating rate rationalisations, procedural simplifications, and sectoral reliefs, embodying the federal spirit enshrined in the Constitution.

Government’s accomplishment

One of the biggest achievements of GST has been improved compliances. With the continuous thrust on digital compliances and measures like e-invoicing, mandatory e-way bills, online credit matching mechanism, the government has been able to enlarge tax base and reduce tax leakages.

Taxpayers have more than doubled in last eight years, an achievement in itself.

GST has also matured substantially in terms of tax buoyancy. Monthly GST collections now consistently hover above ₹1.75 lakh crore, with April 2025 recording a record ₹2.1 lakh crore — the highest since inception.

Impact on Taxpayers and Businesses

For businesses, GST has meant both challenges and opportunities. On one hand, the harmonised tax structure removed inter-state trade barriers, allowed seamless credit, and lowered logistics costs. On the other hand, initial compliance burdens, especially for small businesses, and the frequent changes in rules and rates led to confusion and unwarranted litigation.

However, simplification of compliances coupled with digitisation has been an ongoing effort. Substantial increase in taxpayer base is a result which reflects growing formalisation and better compliance system. Measures such as automation of refund process, auto-filled returns, QRMP (Quarterly Return Monthly Payment) scheme are some of the significant steps towards taxpayer convenience and have considerably benefitted MSME businesses.

The issue of multiple audits and litigations invoking the extended period of limitation remains unresolved and continues to require simplification by the Government.

From a consumer perspective, GST contributed to reduction in the overall tax burden on several goods and services. Essential items are largely taxed at 0% or 5%, while luxury and sin goods attract higher slab of 28%. GST also created a standard rate structure across states thereby leading to reduced price disparity for consumers.

Way Ahead

Since its introduction, GST has been a dynamic and evolving tax regime with GST Council deliberating on the rate disparities and other aspects, every quarter. This is worth appreciating that the GST Council has been very open and ready to actively consider and resolve issues raised by taxpayers, procedural and interpretational.

As GST enters its ninth year, there are several key areas where the Government’s continued focus will be crucial for strengthening the system and enhancing taxpayer confidence.

Rate rationalisation remains a top priority, particularly the long-pending proposal to reduce tax slabs to minimise classification disputes and improve compliance efficiency. The Group of Ministers (GoM) is also expected to address sectors affected by inverted duty structures and rationalise rate disparities within industries, a key mandate being recommending the fate of compensation cess, which is set to expire in March 2026 — a policy reform that must be finalised through comprehensive industry consultation and careful assessment of its business impact.

Additionally, with GST revenues now demonstrating stability, there is a strong case for revisiting input credit restrictions on various business expenditures. Aligning credit eligibility with global best practices can help reduce blocked credits and lower the overall tax cost for businesses. There is also merit in introducing provisions for refund of accumulated credits at the time of business closure — a mechanism that existed under several state VAT laws.

Another critical reform lies in expanding GST base by way of inclusion of currently excluded sectors such as petroleum products, electricity, and real estate (beyond construction services), whose phased integration is essential for achieving a comprehensive and seamless GST framework.

On the procedural front, streamlining of audits is imperative, especially for large taxpayers operating across multiple jurisdictions who continue to face the burden of decentralised and repetitive audits. The long-standing demand for decriminalisation of GST offences also needs to be addressed in order to create a more business-friendly environment. Finally, the Government must continue to invest in data-driven governance. The use of advanced analytics, AI, and blockchain for fraud detection and risk-based audits can enhance enforcement efficiency while also reducing disputes for compliant taxpayers.

Eight years of GST mark not just the survival but the steady maturation of India’s boldest tax reform. While the journey has not been without hiccups, the direction remains firmly forward-looking. With GST reasonably stabilised now, what is needed as a next step is a set of GST reforms guided by principles of ease of compliances, transparency, and reduced complexity.