The Goods and Services Tax (GST), enacted through the 101st Constitutional Amendment Act aims to create a unified national market by subsuming multiple Central and State taxes like excise duty, VAT, and service tax. While GST has led to many positive outcomes, several critical challenges remain, particularly concerning rate complexity, compliance burden, and fiscal autonomy of states.
Significant achievements of GST:
Digital and Transparent Tax Ecosystem:
- GST is entirely technology-driven, using the GSTN portal for registrations, return filing, and compliance.
- E-way bills and digital tracking have helped reduce tax evasion and enabled better enforcement.
Widening of the Tax Base:
- GST registrations have more than doubled from 6.5 million in 2017 to 14 million in 2024.
- Taxpayer base expanded especially among small and medium enterprises due to threshold exemptions and simplified compliance schemes.
Improved Tax Collections:
- Collections rose from ₹11 lakh crore in FY2020–21 to ₹22 lakh crore in FY2024–25, indicating enhanced compliance.
- April 2025 saw record collections of ₹2.10 lakh crore.
Elimination of Cascading Taxes:
- Seamless input tax credit (ITC) across the supply chain minimized the “tax on tax” effect. For example, a shirt manufacturer now pays tax only on value addition at each stage, not on cumulative tax paid on raw materials.
Improved Ease of Doing Business:
- World Bank credited GST with improving India’s EoDB rank from 130 (2016) to 63 (2022).
- Removal of inter-state barriers has reduced logistics costs and improved competitiveness.
Exporter-Friendly Refund Mechanism:
- Automated IGST refunds processed within 7 days via the ICEGATE portal. For example, ₹1.18 lakh crore has been refunded in FY25.
Limitations with GST system:
Complex Rate Structure:
- The presence of five major tax slabs (0%, 5%, 12%, 18%, and 28%) leads to frequent classification disputes. For example, whether a food item like paratha is “cooked” or “uncooked” created litigation and confusion.
Exclusions of Key Commodities:
- Petroleum, alcohol, and electricity remain outside the GST framework, affecting input tax credit flow and creating cascading taxes.
Low Buoyancy:
- Despite absolute growth, GST-to-GDP ratio remains stagnant at 6.8%, indicating limited tax buoyancy.
Frequent Changes and Instability:
- 55 GST Council meetings in 8 years have made over 1,000 rate/classification changes, adding to uncertainty for businesses.
Delayed Dispute Resolution:
- The GST Appellate Tribunal, announced in 2024, is still not operational, creating a backlog of over 14,000 cases.
Regressive Nature of GST:
- As a consumption-based tax, GST disproportionately burdens the poor, who spend a larger share of income on taxed essentials.
Technical Glitches:
- Frequent GSTN portal crashes leading to filing deadlines and complex reconciliation requirements affect small taxpayers especially MSME’s.
Erosion of State Fiscal Autonomy:
- Revenue dependence on the Centre has deepened, especially post-2022 when GST compensation ceased, affecting states like Punjab and Maharashtra.
Reforms needed:
Rationalization of Tax Slabs:
- Merge slabs (e.g., 12% and 18%) to simplify the structure and reduce classification disputes.
- Consider zero or minimal rates on essentials, higher rates for luxury goods to enhance equity.
Inclusion of Excluded Items:
- Bring petroleum, electricity, and alcohol into GST to ensure comprehensive ITC flow and broader tax base.
Strengthen Dispute Resolution Mechanism:
- Operationalize GST Appellate Tribunal (GSTAT) and ensure all regional benches are fully functional.
Automate All Refunds:
- Extend the success of automated IGST refund model to all refunds processed by GST officers to reduce delays.
Simplify MSME Compliance:
- Implement graded compliance norms and single-page returns for businesses below ₹5 crore turnover.
Integrate GST and Customs Systems:
- Seamless data sharing between GSTN and ICEGATE can enhance fraud detection and reduce duplication.
Restore State Confidence:
- Consider a permanent compensation mechanism or alternative devolution to address revenue disparities and uphold cooperative federalism.
Conclusion:
A calibrated shift towards GST 2.0 focusing on simplicity, automation, and inclusiveness along with a stronger push for direct tax-based redistribution will be crucial to ensure both fiscal efficiency and cooperative federalism spirit in India’s taxation landscape.
‘+1’ Value addition:
- GST tax payers grew from 1.05 crore in 2018) to 1.46 crore in 2024.
- Monthly GST collections averaged ₹1.65 lakh crore in FY25, with a record high of ₹2.10 lakh crore in April 2025.
- IGST refunds now processed within one week via Customs ICEGATE portal and ₹1.18 lakh crore refunded in FY25.
- State GST collections grew at ahigher rate (15.2%) compared to Central GST, showing the potential of state level growth.
La Excellence IAS Academy, the best IAS coaching in Hyderabad, known for delivering quality content and conceptual clarity for UPSC 2025 preparation.
FOLLOW US ON:
◉ YouTube : https://www.youtube.com/@CivilsPrepTeam
◉ Facebook: https://www.facebook.com/LaExcellenceIAS
◉ Instagram: https://www.instagram.com/laexcellenceiasacademy/
GET IN TOUCH:
Contact us at info@laex.in, https://laex.in/contact-us/
or Call us @ +91 9052 29 2929, +91 9052 99 2929, +91 9154 24 2140
OUR BRANCHES:
Head Office: H No: 1-10-225A, Beside AEVA Fertility Center, Ashok Nagar Extension, VV Giri Nagar, Ashok Nagar, Hyderabad, 500020
Madhapur: Flat no: 301, survey no 58-60, Guttala begumpet Madhapur metro pillar: 1524, Rangareddy Hyderabad, Telangana 500081
Bangalore: Plot No: 99, 2nd floor, 80 Feet Road, Beside Poorvika Mobiles, Chandra Layout, Attiguppe, Near Vijaya Nagara, Bengaluru, 560040
