By Lalitagauri Kulkarni and Bhushana Karandikar
The GST Journey: Seven Years of India's Transformative Tax Reform
The introduction of the Goods and Services Tax (GST) in 2017 marked one of India's most ambitious economic reforms, fundamentally reshaping the country's indirect taxation landscape. Designed to simplify a complex web of taxes and create a unified national market, GST represented a paradigm shift in how India approaches revenue collection and economic integration.
Origins and Objectives of the GST Framework
Proposed initially in 2000 by the Dasgupta Committee on indirect tax reforms, GST was built upon three foundational pillars: establishing a unified indirect tax framework, fostering a common national market, and enhancing tax buoyancy to ensure revenues would grow in tandem with economic expansion. After years of deliberation and political negotiation, this comprehensive tax system finally became operational in July 2017, replacing multiple state and central levies with a more streamlined approach.
Revenue Performance and Collection Milestones
Seven years into implementation, the revenue indicators paint an encouraging picture. According to official data, gross GST collections reached a historic high of ₹22.08 lakh crore in the 2024–25 fiscal year, representing a substantial 9.4 percent increase over the previous year. This translates to average monthly collections of approximately ₹1.84 lakh crore, demonstrating the system's growing maturity and effectiveness.
The steady upward trajectory in GST revenues reflects multiple factors working in concert: broader economic expansion across sectors, improved digitization of tax processes, and increasing familiarity with compliance requirements among businesses of all sizes. From nano-enterprises to large corporations, evidence suggests that navigating GST procedures and making digital payments has become significantly more straightforward compared to the earlier multi-layered indirect tax regime.
State-Level Variations in GST Performance
A central objective of GST was to harmonize India's previously fragmented tax system and improve tax buoyancy across states, meaning GST revenues would ideally grow in line with or faster than state incomes. While GST collections have strengthened nationwide, the pace of growth varies significantly between states.
Average GST-to-GSDP ratios across Indian states range from approximately 3 percent to 13 percent, a variation that has remained relatively stable over time. This divergence highlights how economic structure plays a crucial role in shaping tax outcomes under the GST framework.
States with higher urbanization levels and more developed service sectors have recorded particularly strong performance. Haryana, for instance, has seen its GST-to-GSDP ratio rise dramatically from around 7.6 percent to 17.6 percent, while Maharashtra's ratio increased from 5.6 percent to 13.8 percent. These gains underscore GST's effectiveness in capturing value addition within service-oriented, digitally connected economies.
Other states have also demonstrated meaningful progress. Odisha's GST-to-GSDP ratio climbed from about 4.1 percent to 10.9 percent over the same period, reflecting improved formalization of economic activities and better integration into the national GST system.
The Structural Mechanics of GST Distribution
Understanding GST's impact requires examining its structural mechanics. For intra-state sales, the tax is shared between the central government (CGST) and state governments (SGST), replacing earlier state-level levies such as Value Added Tax and entertainment taxes. For inter-state sales and imports, the central government collects Integrated GST (IGST). This dual structure aims to balance revenue sharing while maintaining the integrity of a national market.
Cultural Transformation in India's Tax Administration
Beyond revenue figures, GST has fundamentally altered how taxes are paid and administered across India. The system has shifted taxation toward greater transparency, simpler understanding, and reduced evasion opportunities. In essence, GST represents a cultural transformation in taxation rather than merely a change in tax rates.
The previous indirect tax regime relied heavily on physical paperwork, multiple overlapping taxes, and discretionary enforcement, creating complexity, inefficiency, and opportunities for rent-seeking. Under GST, timely filing of returns has improved significantly across states, reflecting stronger procedural compliance and growing familiarity with digital systems.
Looking forward, further improvements in GST revenues are likely to come from deepening compliance through better support for registered businesses, strengthening verification mechanisms, and leveraging digital data more effectively to expand registrations.
Post-Compensation Era and Future Trajectory
With the GST compensation mechanism concluding in 2022, the steady growth in state-level GST collections represents a positive signal for fiscal stability. As GST enters a more mature phase, its contribution to public finances will increasingly depend on how well tax administration aligns with underlying economic structures across different states.
GST cannot be judged in simple binary terms as either a complete success or failure; it remains an evolving institutional reform. The system has demonstrably improved transparency and stabilized indirect taxation, even while operating within India's uneven economic landscape. The next phase of GST development appears less focused on changing tax rates and more concerned with aligning the system with economic fundamentals and state administrative capacities.
As India approaches the Union Budget 2026, the GST framework continues to demonstrate resilience, with absolute collections increasing in almost all states, including through periods of economic disruption. This durability suggests that while challenges remain in harmonizing outcomes across diverse state economies, the foundational architecture of GST has established a more robust platform for India's indirect taxation future.
(Lalitagauri Kulkarni is Faculty at Gokhale Institute of Politics and Economics. Bhushana Karandikar is an Independent Researcher)
