A New GST Chapter

In July 2017, India replaced a tangled web of central and state taxes with one destination-based system. The launch of the Goods and Services Tax (GST) was ambitious, not only in its scale but also in the philosophy that accompanied it. Rather than attempt a perfect system from the outset, policymakers decided to keep the reform alive through the GST Council, respond to teething troubles in real time, and iterate in public. This was a deliberate choice: build the plumbing first, sort out the price later. That philosophy, which defined GST’s early years, returns to the headlines today with the government’s new rate rationalisation blueprint.

According to the latest reporting, the Centre has placed before state finance ministers a proposal to simplify rates into two core slabs of 5% and 18%, with a special 40% band reserved for luxury and demerit goods. The GST Council is expected to deliberate on this in September 2025, with a possible rollout aligned to Diwali in October this year, provided consensus is reached.

The question many will ask is simple: what would change on store shelves? Early briefings suggest that almost all items currently taxed at 12% could move down to 5%, while a large share of the 28% basket could migrate to 18%. Essentials would continue to be taxed at zero. This compression has practical consequences. It reduces the persistent confusion around classification that has plagued businesses, making compliance more straightforward. For consumers, fewer slabs mean clearer price signals, while the retention of the 40% rate for sin goods ensures that deterrence remains strong where it is needed.

Rails Beneath the Reform

To understand why this rate debate matters now, one must look at what has been quietly built beneath the surface. The “rates story” comes after years of laying down the rails that make simplification credible and durable. Consider first the compliance infrastructure. The rollout of the e-way bill in 2018 liberated highways from the choke of tax check-posts and gave administrators live data on goods in transit. Then came GSTR-2B, a static statement of input-tax credit that removed uncertainty for taxpayers, followed by the sweeping rollout of e-invoicing. Today, all firms with turnover above Rs 5 crore must issue e-invoices, a change notified on 1st August 2023, so that invoices feed directly into returns. The result is that fake-credit networks find little room to operate. For smaller businesses, the Quarterly Returns with Monthly Payment (QRMP) scheme provides relief by allowing them to file quarterly while paying monthly, easing cash-flow pressures without undermining compliance discipline.

Enforcement, too, has evolved in a way that reflects both maturity and pragmatism. Authorities have paired decriminalisation of routine errors with sharper tools to tackle fraud. Nationwide drives against fake registrations are complemented by Aadhaar-based biometric verification at the registration stage, ensuring that entry into the system itself is more secure. Data-led targeting by analytics teams has added precision, making enforcement less about blanket suspicion and more about identifying real risk. The effects are visible not just in departmental action, such as the cancellation of bogus registrations, but also in the greater confidence with which policymakers now speak about accelerating refunds and registrations.

Another long-standing weakness, disputes, is finally receiving the institutional attention it deserves. For years, uncertainty over classification, valuation, and credit disputes has been a quiet drag on compliance certainty. The GST Appellate Tribunal now promises to change that. With rules notified, benches mapped, and a president appointed in May 2024, the Tribunal has achieved key milestones. As benches become operational, taxpayers will, for the first time, have a single, specialised forum to settle disputes, offering the predictability that the ecosystem has been waiting for.

With the rails in place, the GST Council can now turn its energy towards speed. The so-called “next-generation” proposal being discussed would allow most registrations to be granted within three days and would automate roughly 80% of refunds soon after filing in the case of exporters and inverted-duty structures. These changes are not merely administrative conveniences. Faster entry into the system, quicker release of funds stuck in refund backlogs, and a reduced burden of multiple rate codes directly affect business confidence. They make compliance feel less like an imposition and more like a service.

New Chapter in India’s Tax Story

Do the outcomes justify the patient method of building incrementally? The collections tell their own story. Gross GST revenues have doubled in five years to Rs 22.08 lakh crore in FY25. April 2025 alone recorded Rs 2.37 lakh crore, the highest monthly mop-up on record. Revenues of this magnitude rarely shift without a combination of deeper formalisation of the economy, cleaner input-tax credit flows, and steady consumption. These numbers suggest not a system fraying at the edges, but one that is steadily strengthening.

If so, a two-slab regime would not arrive on fragile ground but on a sturdier base built over years of cumulative reform. That is the real story worth telling. GST was never a one-night rewrite of India’s tax code. It has always been a platform that learns and adapts. Rates have been pruned in stages rather than through a one-shot redesign. Invoices have been attached to returns to make evasion more difficult. Small taxpayers have been given room to breathe through schemes like QRMP. Fraudsters have been cornered through biometric verification and analytics. Disputes, long left in limbo, are now handed to a purpose-built Tribunal.

The proposal for two slabs of 5% and 18%, with a 40% cordon for luxury and demerit goods, feels less like a radical break than the natural sequel to this long process. If the Council approves the way in September, Diwali 2025 could mark not just a festive season but a symbolic new chapter in India’s tax reform story. One where compliance is faster, pricing is clearer, and the GST reform finally begins to look as simple as it was always meant to be.

Views expressed are personal