
July 1, 2025, marks a significant milestone in India’s economic history. Exactly eight years ago, on July 1, 2017 the Goods and Services Tax (GST) was implemented in India, driven by the vision of “One Nation, One Tax.” This monumental tax reform impacting millions of businesses and billions of consumers, fundamentally reshaped our fragmented indirect tax system. The journey has overcome numerous challenges and continues to evolve. It’s no exaggeration to say that this is one of the most critical and remarkable economic reforms in independent India’s history.
Why Was GST Needed in the First Place?
Before GST, India’s indirect tax system was a complex maze, often described as a “tax on tax” regime. When you purchased a product, it incurred central excise duty during manufacturing, followed by various states levying their own Value Added Tax (VAT). Services were subject to service tax. Beyond these, numerous state-level taxes like entry tax, octroi, luxury tax, and entertainment tax also existed.
This multi-layered system meant that a product was taxed multiple times before reaching the consumer. Crucially, businesses couldn’t fully claim input tax credits for taxes paid earlier in the supply chain, significantly inflating the final price of goods. For businesses, inter-state movement of goods was a nightmare. Trucks and cargo vehicles would be stranded for hours, sometimes days, at state borders to pay entry taxes and obtain other clearances. This inflated transportation costs and caused significant delays in freight movement. Adhering to tax regulations was incredibly difficult for businesses due to differing tax laws, forms, and authorities across states. This complexity, lack of transparency in the tax system, and impediments to inter-state goods movement discouraged investment. Moreover, this chaotic tax regime hindered the competitiveness of our domestic products in the global market and complicated doing business nationally.
GST’s Advantages: Why It’s Better Than the Old System
GST was introduced to rectify these fundamental flaws and simplify the country’s economic system. Compared to the old system, GST offers clear benefits. Its primary achievement is the elimination of the cascading effect of taxes. Through the Input Tax Credit (ITC) mechanism, businesses can fully offset the tax paid on raw materials or services purchased for their products against the tax collected when they sell. This ensures that the tax burden falls only on the value addition, ultimately reducing the tax burden on consumers for many goods and services.
Furthermore, by subsuming numerous central and state taxes under a single tax, GST has created a unified national market. This has improved logistics and reduced tax compliance complexities for businesses. The process of tax calculation and filing has been simplified. The digital-based GST system has also enhanced transparency in tax collection, curbing tax evasion. This has led to a significant increase in government tax revenue, contributing to national development.
The Genesis of GST – A Vision Takes Shape
The foundation for the GST idea was laid in 2000 with the Kelkar Task Force report on Indirect Taxes. Its primary objective was singular: to replace over 17 central and state taxes (like central excise duty, state VAT, service tax, entry tax, and octroi) and 13 types of cesses with a single, comprehensive tax system. Realizing this reform required decades of political deliberation and consultation.
In 2006, then Finance Minister P. Chidambaram officially proposed GST. In 2009, the Empowered Committee released a discussion paper outlining a dual GST model (where both central and state governments would levy taxes). Finally, in 2016, the Constitution (101st Amendment) Act was passed, receiving assent from then President Pranab Mukherjee on September 8, 2016.
The GST Council, established by this Act, is a unique institution. Chaired by the Union Finance Minister and comprising finance ministers from all states, this council makes unanimous decisions on tax rates, exemptions, and legal changes. This stands as a great example of Indian cooperative federalism, harmonizing the erstwhile disparities in state tax policies and bringing the nationwide tax system under one umbrella. The GST Council, in its meetings, not only decides on tax rates but also addresses regulations, legal amendments, and administrative challenges, continuously refining the system. This has brought stability to the tax regime.
Initial Challenges and Subsequent Transformative Changes
When GST launched on July 1, 2017, it faced significant operational challenges due to the sheer magnitude of change. Initially, goods and services were categorized into four main tax slabs: 5%, 12%, 18%, and 28%, with an additional cess on certain luxury and demerit goods. Adapting to this massive shift proved particularly challenging for Micro, Small, and Medium Enterprises (MSMEs).
The GST Network (GSTN) portal, the technological backbone of GST, had to process billions of transactions and initially faced technical glitches and server outages. The tax return filing process was also complex at first. The three-return system — GSTR-1 (sales), GSTR-2 (purchases), and GSTR-3 (summary) — especially the auto-population of purchase details through GSTR-2, became a headache for businesses. Data mismatches and technical difficulties eventually led to the cancellation of GSTR-2.
However, the GST Council responded swiftly to these issues. They convened frequently, accepted suggestions from businesses, and amended regulations. The introduction of simplified summary returns like GSTR-3B, extensions of deadlines, and the provision of facilities like the Composition Scheme for small businesses brought significant relief to millions. Under the Composition Scheme, small businesses can pay a lower fixed tax rate on their turnover and file fewer returns, which is a huge advantage for them.
A key reform was the introduction of the e-way bill system in April 2018. Previously, trucks and cargo vehicles would be held up for hours at state border checkpoints, leading to time and fuel wastage. The e-way bill has completely eliminated this, making goods transport faster and more efficient, and significantly reducing logistics costs. This has not only curbed tax evasion but also increased transparency in freight movement. All these changes have paved the way for a revolutionary transformation in the country’s economic system.
Eight Years of GST – Achievements and Economic Impact
Eight years on, GST has left an indelible mark on the Indian economy. Its benefits are clearly evident. GST has created a unified national market. With the elimination of tax barriers and differing tax rates between states, the flow of goods and services across the country has become smoother. This has simplified business operations and improved India’s “Ease of Doing Business” ranking. Sectors like logistics, warehousing, Fast-Moving Consumer Goods (FMCG), and automobiles have particularly benefited. For instance, where earlier businesses might have needed a warehouse in every state, GST now enables them to manage large-scale operations with fewer warehouses nationwide.
GST has significantly boosted tax collections. The number of taxpayers has increased from 6.5 million before GST to over 15.1 million (as of April 30, 2025), indicating a formalization of the economy. In the financial year 2024-25, gross GST collections reached a record ₹22.08 lakh crore, marking a 9.4% growth. Average monthly collections stood at ₹1.84 lakh crore, with April 2025 recording the highest-ever collection at ₹2.37 lakh crore. June 2025 also saw collections of ₹1.85 lakh crore. This increased revenue allows the government to allocate more funds to welfare programs and infrastructure development.
The completely digital-based GST system, particularly e-invoicing (mandatory for businesses based on their turnover), has enhanced transparency in the tax system. This has curbed tax evasion and encouraged a culture of honest tax compliance. Digital transactions have simplified tax audits, enabling the government to estimate tax collections more accurately.
Consumers have also benefited from GST. The elimination of the cascading effect of taxes and the rationalization of rates by the GST Council have led to a reduction in the prices of many essential goods. For example, mobile phones and home appliances, which previously attracted a 28% tax, now fall into the 18% or 12% slab, making them more affordable.
Yet to Achieve – Remaining Challenges
While GST’s achievements are immense, it is not yet perfect. Some challenges still lie ahead. Key commodities like petroleum products (petrol, diesel, gas), alcoholic beverages for human consumption, and electricity are still outside the GST ambit. This hinders tax unification and leaves the input tax credit chain incomplete. Bringing these under GST’s purview is a primary government objective, but it requires political consensus due to its significant impact on state government revenues.
There is also a need to further rationalize tax rates. The GST Council is actively considering a proposal to merge the existing 12% and 18% slabs. This would lead to greater tax simplicity and reduce classification disputes. To expedite the resolution of GST-related disputes, it is crucial to fully establish and operationalize GST Appellate Tribunals (GSTATs) across the country. Currently, thousands of tax disputes are stalled due to the absence of these tribunals. Resolving them quickly will save time and resources for both businesses and the government. Finally, continuous efforts are needed to further automate input tax credit reconciliation and fully implement the invoice-matching system. This will enhance transparency and reduce errors in the tax payment process.
GST Towards Further Strengthening
The eight-year journey of GST has laid a comprehensive, transparent, and efficient tax foundation for the Indian economy. While it may not be a perfect system, there is no doubt that it is a revolutionary reform that has fundamentally transformed the country’s economic landscape. GST has proven that large-scale reforms are possible through cooperative federalism and by continuously adapting to changes.
As India steps into the ninth year of GST implementation, the focus should be on rate rationalization, bringing more items under the GST ambit, simplifying procedures, and further strengthening the digital system. The GST story is far from over, but its foundations are strong, and it is heading in the right direction. Its full potential is yet to be unlocked, and it stands as a strong pillar for the nation’s economic growth and a more unified national market.