The Goods and Services Tax (GST) completes its 9 successful years of implementation and it’s a good time to take stock as the indirect tax regime moves from childhood to maturity. GST has never merely been a tax reform; it was one of independent India’s most ambitious democratic and constitutional transformations. For the first time, the Union and the States agreed to pool a significant portion of their independent taxation powers under a common framework, creating a single national market governed through dialogue and consensus in the GST Council.
GST streamlined India’s indirect tax system by eliminating cascading taxes and introducing a unified structure. It integrated the national market, improved transparency, and enhanced the ease of doing business. It also reduced compliance and transaction costs across supply chains, leading to more competitive pricing and uniform tax treatment for consumers across states.
The GST Network, e-Way Bills, e-Invoicing and IMS together form one of the world’s largest digital tax ecosystems. Every transaction leaves a digital trail, enabling compliance monitoring with unprecedented transparency—marking the second milestone in the GST journey. Moreover, GST has accelerated the digital transformation of Indian businesses. ERP systems, automated invoicing, and data-driven compliance are now integral to corporate governance rather than optional practices.
The third milestone lies in rate rationalisation. At its inception, GST reduced the effective tax burden, with a maximum ceiling of 18% for mass consumption goods, compared to the earlier cumulative tax incidence of 26–38% under the pre-GST regime. The shift towards a simplified structure—the move to a two-slab system of 5% and 18%, replacing the earlier 12% and 28% brackets—has made taxation more transparent and easier to navigate. With essential consumer goods largely falling under the 5% bracket, GST has contributed to improved affordability and accessibility. Overall, it has delivered tangible benefits to households while strengthening tax administration.
The first decade was about building the taxation system; the next decade must focus on refining it and making it more seamless and effortless.
The next phase of GST reform must focus on enhancing predictability, as disputes and ambiguities continue to add to business uncertainty and costs. While the shift to a simpler 5% and 18% rate structure has improved clarity and affordability, given the substantial difference in the tax rates, most goods at 5% suffer from credit inversion and accumulation, given that services and capital goods continue to be at 18%. For a domestic manufacturer, this means that it has to charge a price which will make the effective tax higher than 5%. The fear, however, is that for all commodities at 5%, the capital investment credits are no longer available because of already accumulated credits, and hence it means the capital investment in India is now 18% costlier. For multinationals and others, it is an incentive enough to invest in other competitive jurisdictions and import from there. The next phase of GST rationalisation should focus on credit rationalisation, including exploring refunds of accumulated credits at the end of the year—such as staggered refunds for capital expenditure in cases of duty inversion, followed by the eventual inclusion of input service GST refunds.
While the Government has taken significant steps to improve ease of doing business and reduce the transaction costs of GST compliance, greater efficiency is required in areas such as refunds, registration, audit processes and de-criminalisation of offences. At the same time, the push towards simplified audit mechanisms and a stable, technology-led compliance ecosystem must continue. These reforms, coupled with a robust technology-driven GST framework, can further lower transaction costs and ultimately make goods more affordable for consumers.
The author is Partner and Indirect Tax Policy Leader at EY India.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.