GST@9: Bigger revenues, unfinished reform

By: Team India Tracker

Revenue growth alone is not enough. GST’s next challenge is to reduce compliance costs as effectively as it has increased tax collections

Nine years after the Goods and Services Tax (GST) reshaped India's indirect tax system, the verdict is becoming clearer. Despite repeated rate cuts that lowered the effective tax burden on most goods and services, GST has emerged as a far more productive revenue engine than the patchwork of taxes it replaced. Whether it has become a simpler and more efficient tax system remains an open question.

Before GST came into force in July 2017, the taxes that were eventually subsumed under the new regime generated average annual revenue of Rs 7.7 lakh crore. In the GST era, average collections have climbed to Rs 14.6 lakh crore—almost double the pre-GST level.

The increase cannot be explained away simply by a larger economy or higher inflation.

The years immediately after GST’s rollout were anything but smooth. Frequent rate changes, technical glitches on the GST Network, delayed refunds and disputes between the Centre and the states over compensation created uncertainty for businesses. The Covid-19 pandemic then dealt another blow, pushing collections down to Rs 10.68 lakh crore in 2020-21, the only annual contraction since the tax was introduced.

Yet the recovery was swift.

Collections surged by more than 21 per cent in each of the following two years before settling into a more sustainable pace. Net GST receipts touched Rs 19.35 lakh crore in 2025-26, while average monthly collections have more than doubled from around Rs 90,000 crore in the initial year to nearly Rs 1.85 lakh crore.

The moderation in growth to 7.1 per cent this year should not be mistaken for weakness. Rather, it signals that GST is entering a mature phase where the tax base is expanding steadily instead of being driven by post-pandemic normalisation or high inflation.

That distinction is important.

Much of the criticism surrounding GST collections has centred on inflation. Rising prices naturally increase tax receipts. But inflation has eased considerably over the past two years even as collections have continued to set fresh records. The persistence of revenue growth increasingly points towards better compliance rather than merely higher prices.

Technology has become the biggest differentiator.

GST has evolved into one of the world’s largest digital tax platforms. E-invoicing, electronic way bills, invoice matching and real-time data analytics have made tax evasion substantially harder than under the old regime. Integration of GST data with income tax and customs records is enabling authorities to identify suspicious transactions through algorithms instead of relying on routine inspections.

The expanding taxpayer base tells a similar story. Registered taxpayers have risen from 66.5 lakh when GST was introduced to nearly 1.6 crore in 2026. That reflects both the formalisation of businesses and the increasing difficulty of operating outside the tax system.

The next frontier is artificial intelligence.

Tax authorities are beginning to use AI to automate scrutiny, accelerate refunds and improve risk assessment. If implemented effectively, it could reduce compliance costs for genuine taxpayers while allowing officials to focus enforcement on high-risk entities rather than subjecting everyone to intrusive verification.

But revenue success should not obscure the system's shortcomings.

For millions of small businesses, GST remains compliance-heavy. Frequent procedural changes, reconciliation requirements and documentation burdens continue to impose significant costs. Many enterprises still view compliance as a resource-intensive exercise rather than a simplified tax regime.

The reform itself also remains incomplete.

Petrol, diesel, natural gas and other petroleum products continue to remain outside GST because neither the Centre nor the states is willing to surrender a lucrative source of revenue. Their exclusion fragments the indirect tax system and prevents businesses from claiming input tax credit on one of their largest operating costs.

The recent move towards a simpler two-rate GST structure is therefore more than a tax adjustment. It acknowledges that the next phase of reform lies not in expanding the number of taxpayers but in making the system easier to navigate.

Nine years ago, GST was sold as a transformational reform that would create “one nation, one tax”. It has undoubtedly delivered a broader tax base, stronger compliance and far higher revenues than the regime it replaced.

Yet higher collections alone cannot be the measure of success. The true test of GST’s second decade will be whether it evolves from being an efficient revenue machine into a genuinely simple tax system—one that reduces compliance costs as effectively as it raises government receipts.