From 2017 to 2025: India’s GST Journey
Kartavya Desk Staff
Syllabus: Economy
Source: BS
Context: The Government has announced “next-generation GST reforms” to be rolled out by Diwali 2025, focusing on simplifying tax slabs, reducing burden on households, and easing compliance for MSMEs.
About From 2017 to 2025: India’s GST Journey:
What it is?
• The Goods and Services Tax (GST), introduced on 1st July 2017 through the 101st Constitutional Amendment, is a destination-based indirect tax.
• It replaced multiple central and state-level indirect taxes like excise, VAT, service tax, entry tax, luxury tax etc.
• GST is administered in a dual structure: CGST (Central GST) SGST (State GST) IGST (Integrated GST) for interstate trade.
• CGST (Central GST)
• SGST (State GST)
• IGST (Integrated GST) for interstate trade.
• The system is guided by the GST Council (Art. 279A), ensuring cooperative federalism in tax decisions.
Evolution of GST (2017–2025):
• 2017 Launch: GST introduced with 7 slabs (0.25%, 3%, 5%, 12%, 18%, 28% + cess); a 5-year compensation law assured states 14% annual revenue growth.
• 2017–2019: Rates on over 200 items reduced; FMCG products and restaurants shifted to lower brackets to reduce consumer burden.
• 2020–22: Compliance improved with e-way bills, e-invoicing, analytics; however, the state compensation scheme ended in June 2022, creating fiscal stress.
• 2023–24: Group of Ministers on rate rationalisation set up; discussions on reducing slabs intensified.
• 2025: Proposed reforms → move to 4 slabs (special <1%, 5%, 18%, 40% for sin goods), focusing on simplification and lower burden on essentials.
Rationale Behind GST:
• Simplification: GST replaced the complex web of central and state indirect taxes with one uniform tax, making compliance easier.
• Eliminate cascading: By allowing seamless input tax credit, GST prevents “tax on tax,” lowering overall costs.
• Efficiency: It created a unified national market, reducing barriers in interstate trade and boosting competitiveness.
• Digital governance: Online return filing, e-way bills, and e-invoicing have reduced corruption and improved accountability.
• Equity: Since GST is consumption-based, states with higher consumption contribute more, ensuring fairness across regions.
Achievements:
• Revenue Mobilisation: GST consistently generates robust revenues, with average monthly collections reaching ₹1.84 lakh crore in FY25.
• Market Integration: Interstate check-posts were abolished, reducing transport delays and cutting logistics costs.
• Transparency: Digital tools like e-invoicing and data analytics have curbed fake billing and improved compliance.
• Consumer Relief: Rates on many daily-use goods were slashed, directly lowering costs for households.
• Federal Cooperation: The GST Council has become a model of cooperative federalism, where states and the Centre jointly decide.
Challenges:
• Complexity: Too many slabs and frequent changes create confusion and disputes among taxpayers.
• State Finances: With the end of compensation in 2022, many states face fiscal stress and demand new revenue safeguards.
• Compliance Burden: MSMEs struggle with filing multiple returns, refund delays, and classification issues.
• Exclusions: Petroleum and alcohol remain outside GST, leading to continued cascading of taxes in these sectors.
• Revenue Sustainability: The effective tax rate has steadily declined, threatening fiscal stability unless the base is widened.
Way Ahead:
• Rationalisation: Moving to fewer slabs will make GST simpler, predictable, and business-friendly.
• Expand Base: Including petroleum and alcohol will enhance revenues and reduce cascading in critical sectors.
• Support States: A new stabilisation fund is needed to protect states’ finances and maintain federal trust.
• Ease Compliance: MSMEs need simplified filing, faster refunds, and reduced litigation to improve ease of doing business.
• Equity Focus: Essentials should remain in lower slabs, while luxury and sin goods should bear higher taxes for fairness.
• Technology: AI-driven monitoring and data integration can further reduce tax evasion and improve collections.
Conclusion:
The GST journey from 2017 to 2025 reflects both transformative success and structural challenges. It unified India’s tax market, boosted transparency, and simplified the system to an extent, but multiple slabs, state revenue concerns, and compliance burdens remain bottlenecks.