8 Years of GST: A Unified Tax System With Record Collections, But Simpler Reforms Pending

The Goods and Services Tax (GST), introduced in 2017, has completed eight years today. It was launched with a motive to replace a maze of indirect taxes with a single, unified system and to make tax compliance easier, reduce costs for businesses and allow goods to move freely across states.

GST subsumed over 17 central and state taxes under a destination-based dual-GST model featuring Central GST (CGST), State GST (SGST) and Integrated GST (IGST). The current GST structure consists of four main rate slabs: 5%, 12%, 18% and 28%. These rates apply to most goods and services across the country.

In addition to the main slabs, there are three special rates: 3% on gold, silver, diamond and jewellery, 1.5% on cut and polished diamonds and 0.25% on rough diamonds. A GST Compensation Cess is also levied on select goods such as tobacco products, aerated drinks and motor vehicles at varying rates. This cess is used to compensate states for any revenue loss resulting from the transition to the GST system.

In 2024–25, gross GST collections hit a record ₹22.08 lakh crore, marking a year-on-year growth of 9.4%. In eight years, GST has evolved as a robust, digitally driven tax ecosystem which boosted revenue. Yet, challenges remain.

"While the Government has initiated steps to simplify the law by rationalising the tax slabs and automating the compliance system, it would be essential for the Government to address the procedural challenges and high-value litigations on minor issues that are overshadowing the efforts of the Government," said Karthik Mani, partner – indirect tax at BDO India.

Last year, a Coimbatore-based restaurateur's video surfaced online where he flagged the challenges faced by hoteliers in billing, pointing out that while a plain bun doesn’t attract GST, a cream bun is taxed at 18%. His humorous remark about customers opting to buy the bun and cream separately to assemble their cream bun to avoid the GST drew laughter from the audience. However, later he apologised to Union Finance Minister Nirmala Sitharaman.

Despite efforts to simplify taxation, the four-tier rate structure and compensation cess framework continue to be complex and contentious. The GST Council, key decision-making body responsible for shaping and guiding the implementation of GST, yet to make any big-ticket reforms.

PwC India said in a report released on Monday that a comprehensive review of GST rate slabs is required to minimise the disparity between the GST rate on inputs as against that on output, especially for sectors such as electronic vehicles, aviation and e-commerce, which face credit accumulations on account of the inverted tax structure.

""GST in India now stands at a critical juncture where aligning with global trade dynamics is essential. The evolving landscape of international trade, coupled with the growing need to attract investments in the manufacturing and global capability centre (GCC) sectors, calls for a GST framework that is agile, investor-friendly, and globally competitive," the PwC report said.

However, in recent times, there is a signal from the policymakers that India is ready for the next stage of reforms. Recently, in an interview with The Indian Express, finance minister Nirmala Sitharaman indicated that the weighted average GST might come down from the current levels, as part of a restructuring of the rates and slabs of the eight-year-old comprehensive indirect tax.

Last month, home minister Amit Shah also hinted that some GST reforms may be on the cards this time. "I believe that the Narendra Modi government has, after resolving all the teething problems, now brought GST to the doorstep of the next stage of reforms. I can say that following all stakeholder discussions, we are now ready for the next stage of GST reforms," Shah told The Economic Times.

(With inputs from PTI)