Jagran Opinion: GST Reforms To Boost Self-Reliant India Campaign

PM Modi’s speech on August 15, 2025, from the ramparts of Red Fort was breathtaking, electrifying and reassuring. Uniquely comprehensive and futuristic, it was surcharged with emotions of the impatient leader of aspirant India who has challenged the nation to transform the country into 'Viksit Bharat by 2047'. It uplifted the national mood. Vibrations were felt even in the capital market; rise of Sensex and value of Indian Rupee.

Economic prosperity and security of a nation is inextricably interwoven with geopolitical and energy security. Modi succinctly outlined how all three securities will be woven in the tapestry of what he visualises India to be.

Some of the announcements indicated the speed of action and the road to the fructification of the dream. Unleashing animal spirit (a term used by the great economist John Maynard Keynes) in the context of economic growth calls for ease of doing business and ease of living. Announcement of reforms in Goods & Services Tax (GST) by Diwali was one important and far-reaching decisions in that direction.

In July 2017, the complex web of indirect tax structure was subsumed into one unified GST inter alia with the objective of creating ‘One Nation-One Market’. It was hailed as one of the biggest reforms since 1991, which has increased tax revenue, improved compliance, attracted larger amounts of investments and transformed India into a unified national market. It also had a positive impact on the growth of GDP. GST was also greeted as an enviable event of federal consensus, notwithstanding that different political affiliations were presiding over state governments.

However, the structural inefficiencies adversely affected businesses, revenue and the comfort of stakeholders. These range from the complexity of tax structure, frequent changes in rules and rates, issues with Input Tax Credit and compliance burden (ITC) etc.

GST reforms are proposed to address prevailing challenges and transform it into a world class indirect tax structure. The proposed reforms can be grouped into four buckets. Rationalisation and reduction of rates, changes in the inverted duty structure, reducing compliance burden and resolving disputes.

Currently, there are four slabs of tax: 5, 12, 18 and 28 per cent. New GST will be a simplified two-rate structure: 5 per cent standard rate & 18 per cent merit rate. In addition, there will be another rate of 40 per cent for high luxury & sin products. It is expected that 99 per cent of 12 per cent items will move to 5 per cent and 90 per cent of 28 per cent to 18 per cent. New rates will compare well with developed markets like New Zealand, Australia, Canada & Japan, where rates range from 5 to 15 per cent.

Rate rationalisation will reduce distortions like the rate on roti is @ 5 per cent and Paratha is 12 per cent, apparels below Rs. 1000 taxed @ 5 per cent and above at 12 per cent. and value add like marketing, warehouse rentals and logistics etc. taxed at 18 per cent. This has resulted in increased costs to the industry, distortions in the value chain and accumulation of input credits.

Eliminating the complexity of classification will help improve compliance and strengthen the integrity of the tax structure. The reduction in the rate of tax on essential and aspirational goods will benefit the common man, MSMEs, farmers and boost consumption, and eventually add to the GDP growth.

Input credit anomaly in some sector, like at different rates for raw material and finished goods, will also be shorted out with rate rationalisation and clarifications.

Technology driven solutions like seamless registration, pre-filled returns and automated refunds will facilitate ease of compliance and significantly bring down the cost of administration. Quick refunds will add to working capital, bring down the interest costs and reinforce competitiveness.

During eight years of implementation many disputes have arisen on classification in particular. The focus on resolving those disputes will reduce complexity, uncertainty and ensure predictability. Further, the preposition of an alternate dispute resolution mechanism will smoothen the implementation process and enhance confidence.

Various financial institutions have given different impacts on the revenue collection of the proposed changes in the rates. While HSBC Bank estimates a loss of Rs. 1.43 lakh crores in revenue, SBI calculations come to Rs 85000 crores with only Rs 45000 crores for the current year, 26. SBI report reckons a boost in consumption by Rs. 1.98 lakh crore and coupled with Income Tax rates reduction it is estimated to be 5.31 lakh crore: 1.6 per cent of GDP. Growth in consumption will add to tax revenue and more than offset over time the anticipated loss because of rate reduction and rationalisations.

The economic impact of the reforms in GST will boost ‘Make in India’, enhance competitiveness, encourage formalisation of businesses, improve compliance, strengthen ease of doing business and take forward the objective of 'Atma Nirbhar Bharat'. It will improve inflation and contribute between 0.20 per cent to 0.22 per cent to the growth of GDP.

However, the success of well-intended reforms will depend on the efficacious implementation, and cooperation of stakeholders.

(Author and columnist G N Bajpai is the former Chairman of SEBI and LIC. The views expressed are his own.)