By: Dr. Nagalakshmi M.V.N., Assistant Professor,
Paari School of Business, SRM University, AP.
On July 1, 2017, India introduced the Goods and Services Tax (GST), presenting it as a “Good and Simple Tax.” Eight years later, as the 56th meeting of the GST Council approves a new round of “Next-Gen GST Reforms”, it is time to reflect on what we have accomplished, what obstacles we need to overcome, and what lessons we can learn to help shape this transformative tax system in the future.
From Fragmentation to Integration
India’s indirect tax system was complex before the implementation of the GST. The lack of a unified input tax credit system resulted in double taxation, raising consumer prices. As states imposed various VAT rates and other taxes, like the entry tax, costs went up. Businesses had to abide by a number of regulations pertaining to audits, fines, and returns. GST formalized and stimulated India’s economic integration by combining 17 taxes and 13 cesses.
GST by the Numbers
- Taxpayer base: 5 lakh (2017) → 1.51 crore (2025)
- Gross collections FY 2024–25: ₹22.08 lakh crore
- Average monthly collections: ₹2.04 lakh crore (up from ₹82,000 crore in 2017–18)
Simplification as the New Mantra
If the first phase of GST was about stabilizing, the second phase is about simplifying. The current reform establishes two slabs: 5% and 18%, replacing four earlier slabs.
- Essential items such as food, household goods, school supplies, and life-saving pharmaceuticals are either excluded or subject to 5% tax.
- Two-wheelers, compact automobiles, TVs, and air conditioners are taxed at 18% instead of 28%.
- Luxury and “sin goods” such as tobacco, pan masala, yachts, and high-end cars now attract a 40% GST.
Balancing Growth with Relief
GST 2025 also represents a balancing act: decreasing consumer costs while promoting industry growth.
- Housing sector: Tax on cement decreased from 28% to 18%, while the tax on bricks, marble, and bamboo products is5%.
- Farmer relief: Tractors, harvesters, drip irrigation, and bio-pesticides are now taxed at only 5%.
- Industry support: Corrected inverted duty arrangements in textiles and fertilizers to improve competitiveness.
These reforms could lead to more affordable housing, sustainable agriculture, and increased domestic manufacturing.
Social Protection through Taxation
The following revisions show the alignment of GST with the social protection goals of the Government
- 33 life-saving medications and diagnostic kits have 0% GST.
- 5% GST applies to Ayurvedic, Unani, and homeopathic medications.
- Exemption for life and health insurance premiums.
Tax policy, once viewed as a fiscal tool, is increasingly being utilized to promote welfare.
In a country where medical expenditures are driving millions into debt, these actions effectively alleviate household pressures and promote universal health coverage.
Federalism and Consensus
GST is based on cooperative federalism, where the Center and the States unanimously approved the 2025 reforms. The GST Council has historically operated by consensus, even in the face of disputes over compensating cess.
Challenges Ahead
Despite the focus on simplification, issues persist, including
- Ensuring faster refunds and smoother digital compliance.
- Managing revenue risks throughout the shift to two slabs.
- Reducing reliance on hefty “sin taxes” to maintain stability.
- Modernizing GST for e-commerce and digital services.
A Work in Progress
Eight years after its introduction, GST has evolved from complexity to simplification and from skepticism to acceptance. A key lesson is brought home by the most recent reforms: tax structures need to change in tandem with economic growth.
GST 2025 is about finding a balance between revenue, growth, and social protection; it’s not just about rates. Designed for relief, simplification, and inclusive growth, the 2025 GST reforms seek to strengthen both ease of living and ease of doing business. If properly executed the midnight promise of a “Good and Simple Tax” may be eventually realized when GST becomes a useful tool for inclusive prosperity.
