GST at a turning point: The key priorities shaping its future

After almost nine years of operation, India’s Goods and Services Tax has moved beyond its initial bedding-in phase. The regime now stands at a critical inflection point where the focus has shifted from implementation to consolidation, from complexity to clarity, and from compliance burden to genuine ease of doing business. The decisions made in the next two to three years will determine whether GST fulfils its original promise of a unified, efficient and globally competitive indirect tax framework, or whether it stalls as a patchwork of compromises. For tax leaders, CFOs and policy practitioners, understanding the priorities that will shape this next chapter is essential.

The multi-rate structure of GST, currently spanning four principal slabs (0%, 5%, 18% and 40%) has been a persistent source of classification disputes, compliance complexity and economic distortion. The case for rationalisation became well established when GST 2.0 removed 12% and 28% tax slab. The direction of travel is towards fewer slabs, ideally converging on two or three rates that cover the vast majority of goods and services, supplemented by a limited list of exemptions.

Equally pressing is the inverted duty structure, where inputs attract a higher rate than the finished product. This creates credit accumulation, working-capital stress and refund dependency for affected sectors. Resolution requires careful recalibration, raising output rates or lowering input rates, neither of which is politically costless.

GST 2.0 has addressed the inverted duty problems by restructuring the tax rates. However, the rate of tax applicable on packaging material and raw materials remain unchanged resulting in blocked working capital. The challenge, of course, lies in balancing revenue neutrality with affordability. Any restructuring must avoid both an unacceptable revenue shortfall for government and an increase in the effective tax burden on essential goods. The GST Council’s deliberations in this area will be closely watched by industry and consumers alike.

Tax certainty is a cornerstone of any mature regime, yet GST has been marked by a growing backlog of disputes and inconsistent interpretation. The establishment of the GST Appellate Tribunals (GSTAT) represents a significant step forward, but their effective functioning, adequate staffing, procedural efficiency and jurisdictional clarity will determine whether they deliver meaningful relief or merely add another layer of delay.

Beyond the tribunals, the advance ruling mechanism requires urgent attention. Divergent rulings by different state authorities on identical questions of law have created uncertainty and forum-shopping incentives. A National Appellate Authority for advance rulings was constituted to address conflicting advance rulings, which remained non-operational for a long time. Recently, principal bench of GSTAT has been empowered to act as the centralized National Appellate Authority for advance rulings, which is again a positive directive towards resolution of disputes. This will bring binding harmonization among different jurisdictions, and bring in the much needed clarity to restore confidence in the system.

For businesses, the practical implication is clear: predictability in tax positions enables investment decisions. Without it, contingent liabilities accumulate, planning horizons shorten, and the regime’s credibility is eroded.

The GST Network (GSTN) has been one of the most ambitious technology deployments in global tax administration. Its continued evolution is central to the regime’s future. The expansion of e-invoicing to progressively smaller businesses is bringing real-time transaction visibility, enabling both better compliance monitoring and, in time, simpler return filing.

Data analytics and artificial intelligence are increasingly being deployed for fraud detection, particularly in identifying fake invoicing networks and fraudulent input tax credit claims. While this is welcome step from a revenue-protection standpoint, it must be accompanied by robust safeguards against false positives and undue harassment of compliant taxpayers.

The compliance burden on MSMEs and smaller businesses remains a concern. Simplification of return filing, reduction of reconciliation requirements where e-invoicing provides upstream data, and a more proportionate compliance framework for smaller taxpayers are essential if GST is to avoid becoming a barrier to formalization rather than an enabler of it.

GST’s original vision was a comprehensive tax on all goods and services. In practice, several significant sectors remain outside its ambit, most notably petroleum products, electricity, real estate (including stamp duty) and alcohol for human consumption. Each exclusion has its own political economy:

• Petroleum products represent a major revenue source for both centre and states, and their inclusion would require consensus on rate-setting and revenue-sharing that has thus far proved elusive.

• Electricity inclusion would bring substantial input credit benefits to industry but raises complex questions around cross-subsidy mechanisms and state-level tariff structures.

• Real estate and stamp duty integration would address cascading but touches deeply on state fiscal autonomy.

• Alcohol remains politically sensitive given the revenue stakes and state-level prohibition policies.

Progress here will be incremental rather than transformative, but each sector brought within GST strengthens the integrity of the credit chain and reduces hidden taxation.

The seamless flow of ITC was one of GST’s founding promises. In practice, however, credit restrictions, matching failures and denial disputes have created significant working-capital blockages for businesses across sectors. The tightening of credit eligibility rules while motivated by fraud prevention has often penalised compliant taxpayers whose suppliers have defaulted.

Reform in this area should focus on ensuring that bona fide purchasers are not denied credit for supplier-side failures beyond their control. The matching mechanism needs refinement: it must be robust enough to detect fraud but not so rigid that it becomes a tool for revenue retention at the expense of legitimate business. Timely resolution of credit disputes and a clear framework for provisional credit pending verification would materially ease the cash-flow pressures that many businesses currently face.

The GST Council remains one of the most remarkable experiments in cooperative federalism anywhere in the world. Its consensus-based decision-making has, by and large, held an important role, but it faces increasing strain. The expiry of the guaranteed compensation to states has altered the fiscal calculus, and disputes over revenue shares, compensation cess continuation and borrowing arrangements have surfaced underlying tensions.

Maintaining the Council’s effectiveness requires a renewed commitment to transparency, evidence-based deliberation and equitable burden-sharing. The temptation for individual states to pursue divergent administrative practices or to use GST as a tool for competitive fiscal policy must be resisted if the unified national market that GST was designed to create is to be sustained.

For the business community, the stability and predictability of the Council’s decision-making directly affects long-term planning and confidence in the regime’s direction.

In an increasingly competitive global environment, a country’s indirect tax regime is a meaningful factor in investment decisions. GST must be assessed not only on its domestic efficiency but also on how it positions India relative to peer economies. Key priorities include:

• Timely and predictable export refunds, so that exporters are not burdened by blocked working capital.

• Alignment of GST processes with trade facilitation initiatives, including integration with customs and free-trade agreement administration.

• A compliance environment that is proportionate, digitally enabled and does not impose disproportionate costs on businesses seeking to establish or expand operations in India.

An efficient, well-administered GST is a genuine competitive advantage. A cumbersome one is a deterrent particularly for mid-market and foreign investors who compare compliance environments across jurisdictions.

GST’s next chapter is not about fundamental redesign. The architecture is sound; the direction is right. What is needed now is consolidation, fewer rates, fewer disputes, fewer compliance frictions and a deliberate focus on building trust between the administration and the taxpayer.

Simplification must be genuine, not merely cosmetic. Certainty must extend beyond the letter of the law to its consistent and predictable application. Trust must be earned through transparent governance, proportionate enforcement and a willingness to listen to the lived experience of businesses navigating the system every day.

For businesses, the imperative is clear: engage proactively with the evolving regime, invest in compliance capability, and contribute constructively to the policy dialogue. Those who treat GST as a static obligation rather than a dynamic environment will find themselves at a disadvantage. Those who understand its trajectory and prepare accordingly will be better positioned both operationally and strategically for the years ahead.

About the authors: Smita Singh is a Senior Partner and Prateek Sagar is a Principal Associate at S&A Law Offices.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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