The Goods and Services Tax (GST) is an indirect tax policy that was introduced on July 1, 2017 to unify multiple taxes present in India. It substituted a wide range of indirect taxes, including excise duty, VAT, and service tax, whereby levying a single tax PAN India.
Actually, analyzing its effects today, we may say that the numbers speak about the compelling story of digital and economic transformation, more compliance, and modernization of the economy.
The Pre-GST times—The Tangled Tangle of Innumerable Taxes
The arrival of GST resulted in the business world of India receiving a reprieve from a maze of indirect taxation. There was VAT collection done by companies at the local level, Central Excise Duty on goods manufactured, Service Tax on the service providers, and Central Sales Tax on interstate purchases. Such a disjointed system imposed various compliance costs; the businesses had to file different returns on various taxes depending on the state where the business operated.
These multiple taxes came at a very high price due to the subsequent effect of others on one another. Checkposts at state borders caused businesses to have delays and the absence of a good input tax credit mechanism resulted in taxation on tax, which had an impact on final consumers.
GST Implementation: Unifying a Nation Under One Tax
The GST Council, formed in 2016, worked tirelessly to create a unified tax structure. The system introduced three main components:
- CGST (Central GST): Collected by the central government
- SGST (State GST): Collected by state governments
- IGST (Integrated GST): Applied to inter-state transactions
This “One Nation, One Tax” approach eliminated the cascading effect of taxes and created a common national market, allowing businesses to operate seamlessly across state boundaries.
Revenue Revolution: The Numbers That Matter
The effects of GST on revenues of governments have been somewhat astonishing. Monthly collections breached the 1 lakh crore milestone first in April 2018, against a monthly average collection of 89,885 crore in the first year. This would be an indication of an increment in tax compliance and an increase in the tax net.
The registered taxpayers have grown in great numbers with more business entities transitioning to the formal economy. It has become more difficult to evade taxing due to the improved compliance mechanism, which has seen the introduction of the e-Way bill mechanism and reverse charge mechanism.
Digital Infrastructure: The Core of the Contemporary Tax Administration
GST Network (GSTN) is one of the largest digital infrastructure initiatives in India. Millions of transactions occur daily at this online portal, including filing returns as well as processing the refund. Since its initial rollout, there has been a considerable increase in the stability of the system as it currently processes a mean of 2.8 to 3.7 crore e-Way Bills every month.
It is not just the digitization of simply filing returns. Another milestone towards curbing tax leakages and real-time monitoring of tax transactions was released in 2020 through e-invoicing. This internet leading has turned the Indian tax regime into one of the most technologically advanced in the world.
Economic Expenditure: GDP & Macroeconomic Effect
In 2017-18, the GDP of India rose to 7.7% as compared to 7.1% in 2016-17 according to the Ministry of Statistics and Programme Implementation. Although the exact correlation with the implementation of GST remains an issue being debated by economists, the role of reform in making the economy more formal and enhancing the efficiency of the business cannot be underscored.
Small and medium enterprises have been especially advantaged by the end of interstate barriers and lower compliance rates, which provide a better chance of extension of enterprise beyond state lines with relative ease.
Industry-Specific Transformations
Logistics Sector: The Clear Winner
The logistics industry experienced the most dramatic positive impact. With the removal of checkposts and introduction of e-Way Bills, truck turnaround times improved significantly. According to CRISIL Research, trucks now cover an additional 25 kilometers daily, reaching an average of 325 kilometers per day.
While this still falls short of international standards (US trucks average 800 km daily), the improvement represents a 30% increase in efficiency. The consolidation of warehouses and improved load availability has created long-term benefits for the transportation sector.
Export Industry: Challenges and Recovery
Initially, exporters faced significant challenges, particularly regarding GST refunds. Revenue and capital issues emerged within the first month of implementation, with over ₹20,000 crores in refunds pending at one point.
The government responded with “Special Drive Refund Fortnights,” sanctioning ₹5,350 crores in March 2018 and ₹7,500 crores in subsequent drives. While technical glitches initially hampered the refund process, systematic improvements have gradually resolved most issues.
Technological Innovations and Compliance Mechanisms
The introduction of the e-Way Bill system in 2018 revolutionized goods movement tracking. This mandatory system for interstate and intrastate movement of goods worth over ₹50,000 has enhanced transparency and reduced tax evasion opportunities.
The reverse charge mechanism under Section 9(4) has been particularly effective, making buyers liable for GST when purchasing from unregistered dealers. This provision has encouraged supplier registration and expanded the tax base.
Long-Term Economic Benefits
GST has fundamentally altered India’s economic structure in several ways:
- Formalization of Economy: More businesses have entered the formal sector to claim input tax credits
- Price Transparency: Elimination of hidden taxes has made pricing more transparent
- Reduced Logistics Costs: Faster goods movement has reduced overall supply chain costs
- Improved Compliance Culture: Digital processes have created better audit trails
Challenges and Ongoing Improvements
Nevertheless, improvements are not a complete success. The several tax slabs bring complexity and the small businesses continue facing difficulty in regard to compliance requirements. The government still tries to tackle such problems in GST Council meetings and system updates.
COVID-19 put a strain on the system and there were measures of relief and a scheme started in 2020 to allow Quarterly Return Monthly payments.
Future Outlook– Returning to Success
The GST after seven years of implementation has shown its potential to transform. The fact that the system is constantly evolving, starting with the adoption of GSTR-8 forms and ending with e-invoicing, proves the intentions of the government to make the mechanism perfect.
With India targeting to emerge as a five-trillion-dollar economy, the role of GST in building a common market and enhancing compliance and economic development will continue to play an imperative role. The scenario established by this radical tax reform is still sustaining the progress of making India a worldwide economic shining star.
Take the next step towards tax efficiency with GST!
