GST Complexity Grows Despite Initial Simplicity

Source: The post GST Complexity Grows Despite Initial Simplicity has been created, based on the article “A nationwide GST identification mandate can simplify the regime” published in “Live Mint” on 18th July 2025

UPSC Syllabus Topic: GS Paper3- Indian Economy- Taxation

Context: India’s Goods and Services Tax (GST) recently marked its eighth anniversary. Though originally envisioned as a “good and simple tax,” it has evolved into a complex dual structure, influenced by India’s federal setup. This summary explores the structural challenges, compliance issues, and proposed reforms in GST administration.

Structural Design of the GST System

1. Dual Model to Suit Federalism: Instead of a unified VAT, India adopted a dual GST model—Central GST (CGST), State GST (SGST), and Integrated GST (IGST)—to balance federal needs. The model is based on destination-based taxation, replacing the earlier origin-based system.
2. Concurrent Taxing Powers: Both Centre and states share the power to tax consumption. This dual authority reflects federal principles but has increased operational complexity.
3. Uniform SGST Laws with Fragmentation: Though SGST laws are uniform across states, businesses still require multiple state registrations. Each state mandates separate compliance and returns, reviving some burdens from the pre-GST VAT system.

Compliance Burden for Businesses

1. ‘One Nation, One Tax’—A Myth?: Despite rate uniformity across states and UTs, businesses must obtain different GSTINs and maintain separate accounts. This contradicts the unified tax idea and inflates compliance costs.
2. Operational Hassles and Cost Escalation: Separate logins for each jurisdiction and monthly reconciliations make compliance tedious. These requirements increase financial and administrative burdens, particularly for pan-India firms.
3. Inter-Governmental Settlement Issues: Disputes persist in IGST distribution. Between April–July 2024, ₹10,659 crore was over-allocated to some states. A committee comprising central and state officials has been tasked to address this problem and enhance IGST mechanisms.

Digitisation and E-invoicing Developments

1. B2B E-invoicing Mandate: Currently mandatory for firms with turnover over ₹5 crore, e-invoicing is expected to extend to all businesses and B2C transactions. This digitisation will simplify compliance and improve transport turnaround times.
2. Toward Eliminating E-way Bills: Once e-invoicing is fully implemented, e-way bills can be phased out, easing supply chain movement and enhancing efficiency.

PAN 2.0 and GST Simplification Prospects

1. Modernised Taxpayer Identity System:The new PAN 2.0 aims to unify various compliance platforms, using one identifier for business activities. It integrates PAN services on a single digital portal.
2. Proposal for Single GSTIN Nationwide: PAN 2.0 opens the possibility for a unified GSTIN system. Tax allocation can be automated using place-of-supply rules and e-invoicing data, eliminating the need for state-wise GST registration.
3. Learning from UAE’s VAT System: India can draw insights from the UAE, which uses a single VAT registration across all emirates. This system allows inter-emirate and import transactions without separate registrations.

Way Forward

1. Discussion at GST Council Level: India’s GST Council must consider a single-GSTIN framework. This reform could reduce business costs, streamline tax administration, and encourage economic growth.
2. Need for Administrative Integration: With accurate digital records, Centre and states can share revenue transparently. Simplified back-end operations can strengthen GST’s original vision as a seamless, efficient tax regime.

Question for practice:

Discuss the challenges and possible reforms in India’s GST system that aim to simplify compliance and improve efficiency.