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Eight Years of GST: Charting the Course for a Simpler, Smarter 2.0

This next phase of GST must be built on neutrality, trust, and shared growth—where simplification, transparency, and stability define India’s indirect tax ecosystem.

By Sivakumar RamjeePublished at: 3 July, 2025 9:40 am
Sivakumar Ramjee, Executive Director, Nangia Andersen LLP.

As India marks eight years since the implementation of the Goods and Services Tax (GST) on July 1, 2025, it’s time to reflect on its progress and look ahead to GST 2.0. The introduction of GST in 2017 was a watershed moment in India’s tax history, replacing a complex web of indirect taxes with a unified framework. While it has digitized compliance and improved tax administration, challenges remain that must be addressed to unlock its full potential.

GST 1.0: Key achievements

Since inception, GST has delivered several structural reforms:

Area

Achievement

One Nation, One Tax

Replaced multiple Central and State taxes with a unified structure

Seamless Credit Flow

Enabled credit utilization across goods, services, and states

E-Way Bill & E-Invoicing

Improved traceability and eliminated check posts

Formalization of Economy

Broadened the tax base and improved transparency

These reforms have improved working capital efficiency and laid the foundation for a digital tax ecosystem.

From complexity to clarity: The road to GST 2.0

Despite progress, GST still faces structural and procedural challenges that undermine its original promise.

1. Multiplicity of tax slabs

India's GST operates with five major slabs—0%, 5%, 12%, 18%, and 28%—plus compensation cess. While the rationale was equity and revenue balance, the multi-rate structure has led to classification disputes and litigation.

For instance, whether roti (5%) should be taxed differently from paratha (18%) and other classification issues continues to create confusion. Such ambiguity hampers pricing and business predictability.

Suggested Reform:

  • Merge the 12% and 18% slabs into a single median rate.

  • Move to a 3–4 rate structure: 0–5% for essentials, 15% for standard goods, and 28% for sin/luxury goods.

2. Input tax credit (ITC): Limited and litigious

While GST was designed to provide seamless ITC, Section 17(5) of the CGST Act restricts credits on construction, employee welfare, and vehicle-related expenses—even when incurred purely for business.

Impact on Businesses:

  • Increased Costs: Denial of credit leads to embedded taxes.

  • Eroded Margins: Especially for MSMEs and service sectors.

  • Litigation: Frequent disputes and compliance uncertainty.

Suggested Reform:
Allow full ITC on all business-related expenses, excluding only those clearly for personal use, to restore neutrality and reduce cascading taxes.

3. ITC on fuels: A missing link

Fuels such as natural gas, Aviation Turbine Fuel (ATF), and petrol/diesel remain outside the GST net. This breaks the credit chain for fuel-dependent sectors like aviation, chemicals, logistics, and fertilizers.

Sectoral Impact:

  • Natural Gas: CGD(City Gas Distribution), ceramics, and fertilizer sectors bear embedded costs.

  • ATF: Airlines incur unrecoverable tax on key operational input.

  • Petrol/Diesel: Transporters and logistics operators face higher costs.

Way Forward


Bring fuels under GST to enhance cost efficiency, support Make in India, and accelerate the shift to cleaner fuels. This, however, requires Centre–State cooperation and compensation frameworks, as fuels currently generate significant VAT revenue for States.

4. Refund delays erode liquidity

Despite system automation, delays in GST refunds—especially under the inverted duty structure or for zero-rated supplies—continue to strain working capital.

Practical Challenges:

  • Frequent system glitches and processing delays

  • Excessive documentation requirements and manual scrutiny

  • Mismatch-related rejections despite genuine transactions

  • Blocking of working capital, especially for MSMEs reliant on quick liquidity

Suggested Reform:

  • Streamline refund processing through real-time validations

  • Implement deemed approval mechanism beyond prescribed timelines

  • Move toward a consolidated return system to reduce reconciliation issues

5. GST appellate tribunal: Still non-operational

Although the government notified the constitution of the GST Appellate Tribunal (GSTAT) in 2023, and appointed Justice (Retd.) Sanjaya Kumar Mishra as its first President on May 6, 2025, the Tribunal is yet to become fully functional.

Business Impact:

  • Lack of clarity on disputed positions

  • Working capital stuck in litigation

  • Extended legal battles and higher compliance costs

Suggested Reform:

  • Fast-track GSTAT setup with regional benches

  • Time-bound hearings and digital case management

6. Regulatory overload and interpretational conflicts

Since 2017, GST has witnessed:

  • Frequent amendments via Finance Acts

  • Hundreds of circulars and notifications

  • Conflicting Advance Rulings across states

This has created compliance fatigue, especially for MSMEs, and undermined the principle of "One Nation, One Tax."

Suggested Reform:

  • Develop a real-time digital GST Codex with version control

  • Issue regulatory updates quarterly, with advance notice

  • Establish a National Advance Ruling Bench to ensure uniformity

  • Publish plain-language explanatory notes with every major update

A strategic tax regime for a competitive India

GST has unified the country’s indirect tax framework, expanded the formal economy, and digitized compliance. But to truly enable investment, cost-efficiency, and scale, GST must now evolve from a mere compliance mechanism into a robust business enabler.

GST 2.0 must prioritise not only revenue generation but also resilience and reform. It should be supportive of sectoral competitiveness, and predictable enough to guide long-term investment decisions. A broader tax base—through inclusion of presently exempt sectors such as petroleum, electricity, and real estate—would allow for a reduction in headline tax rates, making the system more equitable.  Simultaneously, focused training and capacity building for GST officers is essential to ensure consistent interpretation of laws, reduce litigation, and enhance taxpayer confidence.

This next phase of GST must be built on neutrality, trust, and shared growth—where simplification, transparency, and stability define India’s indirect tax ecosystem.

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