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Introduction

Goods & Services Tax (GST) was introduced with the vision of creating a unified market under the slogan “One Nation, One Tax.” It aimed to simplify the complex indirect tax system, eliminate cascading taxes, boost compliance, and increase government revenue. Over the past eight years, GST has evolved into a critical pillar of India’s economic framework, contributing significantly to formalizing the economy and expanding the tax base.

Background History

The journey towards GST began decades before its implementation. The reform of India’s indirect tax regime started in 1986 with the introduction of MODVAT (Modified Value Added Tax). Subsequent efforts by various governments, including early VAT discussions under Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh, laid the groundwork. The idea of a unified GST was formally proposed in 1999 during Prime Minister Atal Bihari Vajpayee’s tenure, with a committee led by Asim Dasgupta tasked with designing the GST model and backend technology known as the GST Network (GSTN).

Despite efforts, the GST implementation faced numerous delays due to political, administrative, and technical challenges. Finally, on the midnight of June 30 to July 1, 2017, the GST was launched in a historic parliamentary session, marking a new era in India’s indirect taxation.

Challenges Overcome in These 8 Years

The initial years of GST implementation were marked by significant teething problems. Early challenges included:

• Complexity of Tax Structure: GST introduced multiple tax slabs (0%, 5%, 12%, 18%, 28%), which, while designed to address India’s diverse socio-economic fabric, added complexity for taxpayers.
• Technical Glitches: The GSTN portal faced server crashes and system slowdowns, causing delays in return filings.
• Compliance Burden: Businesses, especially MSMEs, struggled with frequent filings, reconciliation of input tax credits, and adapting to new e-invoicing norms.
• Political Opposition: The GST launch faced opposition from major political parties concerned about its impact on middle and lower-income groups.

Despite these hurdles, the government took proactive steps such as introducing the e-way bill system, quarterly filing options for small taxpayers, and enhanced IT infrastructure. Compliance improved with the adoption of digital tools and automation. The tax base expanded significantly, and GST collections have shown steady growth, with FY 2024-25 recording the highest-ever gross collection of Rs. 22.08 lakh crore, doubling in five years. Economists have termed GST as one of India’s biggest success stories in the last decade, highlighting its role in increasing tax revenue and bringing more businesses into the formal economy.

Prevailing Challenges

Despite its successes, GST continues to face several challenges:

• Complex Tax Structure and Frequent Changes: The multiple tax slabs and frequent amendments create confusion and compliance difficulties.
• Compliance Burden on Small Businesses: MSMEs often lack the resources to manage the complex filing and reconciliation processes.
• Input Tax Credit (ITC) Issues: Reconciling supplier and recipient invoices remains cumbersome, leading to delays or denials of ITC claims.
• Technical and Coordination Issues: Though improved, technical glitches persist, and coordination between central and state governments sometimes causes delays.
• Sectoral Exclusions: Key sectors like petroleum and alcohol remain outside GST, complicating the tax ecosystem.
• Non-Functioning Tribunals: Even after eight years since the introduction of GST, taxpayers continue to await the full operationalization of the GST Tribunals or GSTAT.

Way Forward

The future of GST in India is promising but requires continuous reforms and technological integration. Key areas for the way forward include:

• Rationalization of Tax Slabs: The government is actively working on merging tax slabs to simplify the structure and reduce compliance costs.
• Leveraging Technology: Increasing use of Artificial Intelligence (AI), Machine Learning (ML), and data analytics is enhancing tax scrutiny, reducing evasion, and improving compliance. The recent launch of the Invoice Management System (IMS) aims to streamline ITC claims further5.
• Reducing Compliance Burden: Schemes like the Quarterly Return Monthly Payment (QRMP) help small taxpayers. Automation and Robotic Process Automation (RPA) can reduce manual effort and errors.
• Expanding the Tax Base: Efforts continue to bring more businesses and sectors into the GST net.
• Improving Coordination: Strengthening collaboration between the central and state governments to ensure smooth policy implementation.
• Functioning of GST Tribunals (GSTAT): The effective functioning of GST Tribunals (GSTAT) would significantly reduce pending GST litigation, provide timely relief to taxpayers, and ensure the smooth operation of the GST system for revenue authorities.

Conclusion

Eight years after its launch, GST has emerged as a transformative force in India’s indirect tax landscape. It has unified a fragmented tax system, increased government revenues, and formalized the economy. While initial challenges were significant, continuous reforms and technology adoption have strengthened the system. However, to realize GST’s full potential, further simplification, enhanced compliance mechanisms, and better stakeholder engagement are essential. The journey of GST is ongoing, and with sustained efforts, it promises to be a cornerstone of India’s economic growth and fiscal stability for years to come.

CA Sunil Khandelwal
Partner