When the GST was launched on July 1, 2017, it was hailed as the most far-reaching reform of India’s fiscal system since the Constitution came into force in 1950. For decades, India’s indirect tax regime had been fragmented and inefficient. The Constitution had maintained a rigid division: the Union controlled taxes on manufacture (Central Excise), imports and exports (Customs Duty), and, subsequently, the expanding services sector (Service Tax), while the States taxed the sale of goods (Sales Tax/VAT).

The division produced a fragmented national market with multiple rates and overlapping taxes. Most critically, it created a cascading “tax-on-tax” effect, where taxes were levied on goods at every stage of production and distribution, inflating costs and distorting economic decision-making.

GST sought to dismantle this system by consolidating all the taxes into a single, value-added framework. Union taxes such as excise duty, service tax, and various cesses were subsumed, as were State levies including VAT, entry tax, luxury tax, and entertainment tax. The aim was to create a seamless national market and eliminate cascading through the mechanism of input tax credit.

However, the reform was not absolute. To preserve a measure of State fiscal autonomy, key revenue sources—alcohol, petroleum products, and electricity—were kept outside GST. This exclusion fractured the value chain, as taxes paid on these inputs cannot be set off.

GST fundamentally altered India’s fiscal federal balance. It ended the Union’s exclusive authority to tax services and the States’ exclusive power to tax the sale of goods. The most significant shift was the move from an “origin-based” to a “destination-based” tax: revenue now flows to the consuming States, depriving manufacturing States of a major revenue source.

The new fiscal architecture

The transformation required a constitutional overhaul through the One Hundred and First Amendment (2016). Article 246A granted the Union and the States “simultaneous power” to legislate on GST. Article 279A created the GST Council, a unique federal body tasked with making recommendations on rates, exemptions, and key features of the regime to the Union and States. The Council comprises the Union Finance Minister (Chairperson), the Union Minister of State for Finance/Revenue, and Finance or Taxation Ministers nominated by each State. Article 366(26B) includes Union Territories (UTs) with legislatures—Delhi, Puducherry, and Jammu & Kashmir—as “States” for this purpose. Accordingly, the Council has 33 members.

Reflecting on India’s federal structure, GST adopted a dual model. In intra-State transactions, both Union and States levy taxes simultaneously as CGST and SGST, while UTs without legislatures impose UTGST. For inter-State transactions, the Union levies Integrated GST (IGST), which is later apportioned between the Union and the destination State, ensuring revenue flows to the place of consumption.

A 2015 committee led by Chief Economic Advisor Arvind Subramanian had recommended a single Revenue Neutral Rate (RNR) of 15-15.5 per cent to match pre-GST revenues. However, concerns over inflation and the regressive impact on essentials led the GST Council to reject a uniform rate. Instead, GST launched on July 1, 2017, a multi-rate structure—0, 5, 12, 18, and 28 per cent—along with special rates for gold and diamonds and additional cesses on “sin” goods.

A central fault line lies in the revenue split. Earlier proposals, including the 13th Finance Commission’s Task Force on GST (2009), had recommended an asymmetrical division—5 per cent CGST and 7 per cent SGST—to address India’s vertical fiscal imbalance, given that States bear over 60 per cent of the total public expenditure. However, the implemented GST adopted a mechanically symmetric 50:50 split (for instance, 9 per cent CGST and 9 per cent SGST in the standard 18 per cent slab), driven more by political convention than constitutional mandate.

To secure State participation, the GST (Compensation to States) Act, 2017, guaranteed compensation for any revenue shortfall below 14 per cent annual growth for five years. This assurance was critical in persuading States to surrender their primary taxation powers. However, the guarantee expired in June 2022, exposing States to revenue volatility and creating a pronounced “fiscal cliff”.

GST depends on the GST Network (GSTN), its digital backbone, for registrations, return filing, payments, and IGST settlement. However, persistent technical glitches, limited transparency, and restricted data access for States have undermined its effectiveness, contributed to revenue leakages—particularly through fraudulent input tax credit claims—and intensified Union–State tensions over unsettled IGST balances.

Broken grand bargain

The most compelling critique of GST is empirical. It has failed to deliver the revenue buoyancy promised to the States, which had surrendered their most important fiscal power, the authority to tax the sale of goods, in exchange for promised revenue stability. Instead, GST has weakened States’ fiscal capacity and deepened their dependence on Union transfers.

Data from PRS Legislative Research (October 2025) shows a clear decline in tax buoyancy. Before GST—between 2012-13 and 2015-16—the subsumed State taxes yielded about 2.8 per cent of the GDP. Post-GST (between 2017-18 and 2024-25) State GST (SGST) collections averaged only 2.6 per cent of the GDP, hitting a low of 2.3 per cent during the 2020-21 pandemic year, before recovering to 2.8 per cent in 2024-25, merely returning to pre-GST levels after seven years.

When both Union and State collections are aggregated, the total revenue from the subsumed taxes fell from 6.5 per cent of the GDP in 2015-16 to 5.5 per cent in 2023-24—well below the 7 per cent revenue-to-GDP ratio envisaged by the Fifteenth Finance Commission. This decline of nearly one percentage point of the GDP represents a substantial and regressive erosion of fiscal capacity.

One major reason was aggressive rate cutting in the early years. Just four months after rollout, on November 10, 2017, the GST Council reduced rates of 178 items from 28 per cent to 18 per cent overnight. About eight months later, on July 21, 2018, rates on refrigerators, washing machines, and small-screen televisions were similarly reduced from 28 per cent to 18 per cent while sanitary napkins (taxed at 12 per cent) were exempted. Between 2017 and 2019, the weighted average rate reportedly fell from 14.4 per cent to 11.6 per cent.

On August 15, 2025, the Prime Minister unilaterally announced the “Next Generation GST Reforms”, presenting the Council with a fait accompli. Consequently, in its September 3, 2025, meeting, the transition to a three-tier structure (5, 18, and 40 per cent) was approved without rigorous debate, marking the Council’s transformation from a federal negotiation forum into an appendage of the Union. The Union Ministry of Finance has estimated the annual revenue loss from this move at not less than Rs. 48,000 crore.

Under the pre-GST regime, rate reductions by a State affected primarily that State’s finances. Under GST, decisions often driven by Union politics or electoral pressures reduce revenues across all States. In effect, revenue foregone has been collectivised while fiscal discretion has been centralised.

The shift from origin-based to destination-based taxation further altered revenue flows. Manufacturing States such as Tamil Nadu, Maharashtra, Gujarat, and Karnataka lost substantial revenues previously derived from inter-State trade (CST), without adequate compensatory mechanisms. While some Northeastern States gained, States such as Punjab, Chhattisgarh, Madhya Pradesh, and Odisha saw significant declines. Despite these variations, SGST remains the largest source of States’ own tax revenue, accounting for about 44 per cent in 2025–26.

Frequent headline claims about “record GST collections” can also be misleading. Gross collections overstate usable revenue because a significant share—particularly input tax refunds—is returned. The distinction between gross and net revenue matters greatly, yet official narratives often foreground only the former. For example, in 2022-23, gross revenue reached 6.6 per cent of the GDP, but net revenue was only 5.9 per cent. By 2023-24, States’ net revenues remained about 26 per cent below the promised 14 per cent growth trajectory, underscoring the wide gap between expectations and outcomes.

Compensation crisis and the “Fiscal Cliff”

The fragility of the GST compact became evident during the COVID-19 crisis when the economic downturn led to a sharp decline in GST collections. Citing the crisis as an “Act of God”, the Union declined to fully meet the compensation guarantee from its own resources, instead introducing a “back-to-back loan” mechanism. While fiscally neutral for States in accounting terms, this marked a significant shift: what was a statutory right for States was transformed, in practice, into a managed credit arrangement controlled by the Union. This shift in posture did lasting damage to federal trust.

With the expiry of compensation in June 2022, States faced a “fiscal cliff.” Punjab recorded a staggering 49.6 per cent shortfall, followed by Uttarakhand (42.4 per cent) and Kerala (36.5 per cent). Though the compensation cess continues until March 31, 2026, it now services Union borrowing rather than stabilising State revenues.

Distortion of cooperative federalism

The GST Council was originally conceived on the foundation of ideal cooperative federalism: consensus. The 2011 Constitutional Amendment Bill envisaged a model where all decisions required unanimity, effectively granting both the Union and each State a veto. However, concerns over practicality led to its replacement by a weighted voting system under Article 279A (9).

Under the present design, the quorum for a meeting is set at 50 per cent of the total membership of the GST Council (17 out of 33). A three-fourths supermajority (75 per cent) of the weighted votes of the members present and voting is required for the GST Council to take any decision. The vote of the Union Government carries a weightage of one-third (33.33 per cent) of the total votes cast, while the votes of all the 28 States and the 3 Union Territories (UTs) with Legislatures collectively have a weightage of two-thirds (66.67 per cent) of the total votes cast. This design has far-reaching consequences.

First, it gives the Union a de facto veto. Even if all States act unanimously, they can reach only 66.67 per cent. No proposal can pass without the Union’s concurrence. The Union can, therefore, block the collective will of all the States.

Second, the States’ weight is distributed equally across all voting units, regardless of population, economic size, or GST contribution. This creates a false equivalence where Maharashtra and Tripura formally stand on the same footing. As a result, decisions are often shaped by entities with little “skin in the game”, diluting the influence of the States most affected by the GST policy.

Third, India’s political realities further amplify Union dominance. Since the party or coalition governing at the Centre often governs a substantial number of States, the Union can frequently assemble the required majority through political alignment rather than through genuine intergovernmental bargaining. In practice, this risks reducing the GST Council to a forum of managed consensus rather than authentic negotiation, thereby weakening the promise of cooperative federalism.

Fourth, the intersection of the quorum rule and the “present and voting” requirement further distorts outcomes. With the quorum fixed at 50 per cent (17 of 33 members, typically the Union plus 15 States), a complete deadlock is possible only through a coordinated boycott by at least 17 States—an impractical “nuclear option”. While the Union’s vote share remains fixed at 33.33 per cent of votes cast, lower attendance reduces the number of States required to reach the 75 per cent threshold.

In a full house, each State’s vote carries a weight of 2.15 per cent (66.67/31), and the Union requires support from 20 States. In a bare quorum scenario (Union + 15 States), each State’s vote rises to 4.44 per cent (66.67/15), and the Union needs support from only 10 States. Absenteeism thus lowers the bar and tilts outcomes in the Union’s favour, allowing decisions to be carried through a diminished and fragmented Council.

GST Council recommendations cannot be binding

Under Article 265, no tax can be levied or collected except by authority of law. This authority rests exclusively with elected legislatures—Parliament and State Assemblies—not executive bodies. It ensures that taxation remains a sovereign legislative function, subject to democratic scrutiny.

Yet, GST has produced an inversion. The GST Council—a joint executive body of Union and State Ministers—effectively determines tax rates, exemptions, and policy. Given its voting structure, which grants the Union a one-third share and a de facto veto, this arrangement allows a Union-influenced executive forum to constrain the fiscal autonomy of State legislatures. The result is a serious erosion of legislative autonomy and federal balance.

This erosion is substantial. Since GST constitutes around 44 per cent of States’ own-tax revenue, this effectively removes from the State legislatures any meaningful control over a major fiscal stream. A State legislature cannot easily tailor rates or exemptions even in extraordinary local circumstances. While Parliament is theoretically subject to the same constraint, political alignment between the Union Executive and Parliament ensures that this limitation operates asymmetrically—binding States far more tightly.

This constitutional imbalance was partly corrected by the Supreme Court in Union of India v. Mohit Minerals Pvt. Ltd (2022). The court held that the GST Council’s recommendations are advisory, not binding. The Union and the States both enjoy “simultaneous legislative power” under Article 246A, and treating the Council’s recommendations as binding would undermine fiscal federalism.

That judgment, however, has not translated into operational reality. The first obstacle is statutory. The GST Acts and rules, based on model laws proposed by the GST Council, require governments to act “on the recommendations of the Council”. States that adopted the model laws effectively bound themselves. Amending these provisions is politically difficult, as such Bills may be reserved by Governors for presidential assent, which the Union can delay indefinitely.

The second obstacle is technological. The GST Network (GSTN), the system’s digital backbone, is configured to implement only Council-approved rates. Even if a State enacts a divergent rate, the system may not permit its operationalisation.

Reform is essential to restore the integrity of Article 265 and align GST practice with constitutional principle.

First, Article 279A should be clarified to explicitly state that the Council’s role is advisory and subject to legislative supremacy under Article 246A.

Second, GST statutes must be amended to remove provisions that require rule-making to be based strictly on council recommendations. Legislatures should retain the final authority to determine tax policy.

Third, the GSTN architecture must be re-engineered to permit State-specific variations, ensuring that technological constraints do not nullify legislative power.

Allow limited State flexibility in SGST rates

India’s GST framework reflects a fundamental tension between two competing visions: a technocratic emphasis on uniformity and efficiency, and a federalist commitment to State autonomy and accountability. The key question is whether the pursuit of administrative simplicity should override federalism, which is recognised by the Supreme Court as part of the Constitution’s basic structure.

The technocratic perspective

The uniformity-based view, often supported by institutions such as the IMF and large businesses, favours a uniform “One Nation, One Tax” regime. It argues that allowing States to vary rates could lead to trade diversion, revenue leakage, higher compliance costs, and a “race to the bottom” in tax rates. From this standpoint, uniformity is essential to preserve a seamless national market. Yet this view rests on an implicit premise: that administrative convenience justifies curtailing State autonomy. That risks subordinating constitutional federalism to administrative convenience.

The federalist perspective

The federalist view maintains that fiscal autonomy is indispensable to democratic accountability. If States cannot adjust tax rates—especially when GST constitutes nearly half of their own tax revenue—they are reduced to dependent entities, unable to respond to local needs or crises. This creates a structural dependency trap, weakening both governance and accountability. Legally, this view is well grounded. In Mohit Minerals, the Supreme Court clarified that GST Council recommendations are advisory. States, therefore, retain the constitutional authority to legislate independently, including on tax rates.

The economic fallacy of uniformity

The fear that flexible rates will fragment the market is overstated. Two factors blunt the impact of rate variation.

First, GST is a destination-based tax. For businesses (B2B), Input Tax Credit (ITC) ensures that taxes do not accumulate along the supply chain. A producer in a high-tax State exporting to a low-tax State claims full credit, rendering the rate irrelevant. Investment and trade decisions are shaped by infrastructure, logistics, and labour costs—not marginal GST differences.

Second, for consumers (B2C), transaction costs—fuel, time, and effort—act as natural barriers. A consumer is unlikely to travel long distances to save a small percentage on purchases. This friction allows neighbouring States to maintain modest rate differences without significant trade diversion.

Global experience

International experience confirms this. The European Union sustains a seamless common market despite VAT rates ranging from 17 per cent in Luxembourg to 27 per cent in Hungary. The feared “trade wars” have not materialised because ITC ensures taxes do not distort cross-border trade.

Canada follows a “piggyback” model: a 5 per cent federal GST, with provinces adding 0-10 per cent. A single administrator manages this variation, showing that administrative harmonisation need not require legislative uniformity.

Practical reconciliation: floor rates with bands

The most workable bridge between these perspectives is a “floor rate with a band”. Under this model, the GST Council would set a minimum standard rate while permitting States to vary their SGST component within a narrow margin—say, up to 2 percentage points.

This approach is neither novel nor radical. The Parliamentary Standing Committee on Finance (2013), chaired by Yashwant Sinha, emphasised that a “harmonised structure” should guide GST, not bind it. To preserve State autonomy, it recommended limited rate variation above a pre-determined floor. Returning to that approach respects the constitutional design of shared sovereignty.

The proposal is also legally sound. Article 279A(4)(e) expressly empowers the GST Council to recommend “rates including floor rates with bands”. The Constitution thus anticipates flexibility. Operationalising this would allow States to vary rates within the band without seeking prior Council approval, restoring meaningful fiscal agency.

Objections based on technological complexity are unconvincing. The GST Network already handles far greater intricacy; the constraint is political, not technical.

Rotate chairpersonship of GST council

GST was envisioned as a model of cooperative federalism, yet Article 279A (2) disrupts this balance by making the Union Finance Minister the permanent Chairperson. The office carries significant soft power—control over agenda-setting, meeting frequency, and deliberative direction—reducing States to participants rather than equal partners.

The risks of this concentration are evident in prolonged delays in convening the Council, despite Rule 6 of the GST Council Regulations, 2016, mandating quarterly meetings. Notable gaps include:

• 257 days (October 8, 2023, to June 21, 2024),

• 256 days (December 21, 2024, to September 3, 2025),

• 226 days (October 13, 2020, to May 27, 2021), and

• 177 days (January 1, 2022, to June 27, 2022).

These prolonged gaps—often without even virtual meetings—delayed critical fiscal decisions, including pandemic relief, and exposed the Council’s dependence on Union initiative.

To restore genuine federal balance, leadership must be shared. A five-year rotational model is proposed: Year 1 (Union Finance Minister), followed by State Finance Ministers from the North, South, East, and West zones in successive years. The State Chair may be elected by zonal peers or chosen based on seniority, ensuring experienced leadership.

This mirrors the EU practice of rotating the Presidency of the Council among member-states, however small, every six months to prevent the hegemony of larger nations. It would democratise agenda-setting, prevent institutional stagnation, and ensure continuity of deliberation. It would transform the GST Council from an adjunct of the Union Executive into a truly federal forum.

Create independent GST Council Secretariat

The GST Council Secretariat currently functions as an extension of the Union Ministry of Finance, headed by the Union Revenue Secretary and staffed largely by Central tax officers. This arrangement is flawed on three counts.

First, leadership is part-time. The Revenue Secretary, already responsible for the Union’s vast tax system, cannot devote sustained attention to the GST Council, a constitutional body of critical federal importance.

Second, the Union effectively controls the agenda. By shaping discussion papers, data, and minutes, it sets the terms of debate, placing States in a reactive position and skewing outcomes even before deliberations begin.

Third, there is a capability deficit. The Secretariat lacks a permanent, professional core with expertise in tax law, public finance, data analytics, and IT—essential for evidence-based decision-making in a complex system like GST.

An independent Secretariat is, therefore, an institutional necessity. It would ensure neutral agenda-setting, treat Union and State proposals equally, and provide an unbiased analytical foundation for fiscal decisions.

There must be an autonomous GST Council Secretariat, separate from the Union Ministry of Finance. It should be led by a dedicated Secretary-General, appointed through a joint Union-State process for a fixed tenure and accountable to the Council. Staffing should be balanced between Union and State officers, supplemented by domain experts, with specialised units for analytics, legal research, forecasting, and digital systems. Its expenses should be shared equally by the Union and the States.

Procedural opacity in GST committees

While the GST Council is the visible face of indirect tax governance, much of its substantive policy is shaped by officer-level bodies such as the Fitment Committee, Law Committee, and GST Implementation Committee. By the time issues reach the Council, their technical framing and policy options have already been settled in substance, giving these committees decisive but largely opaque agenda-setting power.

The origins of these bodies lie in the earlier Empowered Committee framework. However, their present functioning lacks a codified framework. Committees are constituted and reconstituted by the Secretary to the GST Council—who is also the Union Revenue Secretary—with the approval of the Union Finance Minister. Membership criteria, tenure, and selection processes lack formal rules. Although the Council nominally ratifies these appointments, they are often bundled with routine agenda items, limiting meaningful scrutiny.

This opacity has significant institutional implications. These committees influence critical decisions on tax rates, exemptions, and legal interpretations, yet operate without clear norms on composition, Union-State balance, or accountability. States have little assurance that their fiscal interests or regional realities are adequately represented. Moreover, several contentious micro-classifications have emerged from such bodies, revealing a disconnect between technical classification and economic reality.

To restore trust and federal balance, a formal, rule-based framework is essential. Each committee should comprise no more than 17 members—2 from the Union and 15 from the States—with a fixed three-year tenure, ensuring federal balance. The five States with the highest SGST revenues (over the preceding three years) should be automatic members. The remaining 10 State seats should rotate every three years on objective criteria, ensuring broad regional representation, including one Union Territory with a legislature. Up to three non-voting experts from the GST Secretariat may be co-opted to ensure continuity and technical depth.

Committee decisions should require a three-fourths majority of members present and voting. Crucially, this majority must include the concurrence of both Union members and all “Big Five” States. If any of these seven key stakeholders dissent, the disagreement—along with all analysed policy options—must be expressly escalated to the GST Council for final political determination. This ensures that no technical decision can be pushed through if it materially prejudices the interests of the Union or the principal revenue-contributing States—the actors with the greatest fiscal stake.

This framework ensures technical decisions reflect both federal equity and fiscal stakes, enhancing institutional legitimacy.

Decentralise the GST Network

The GST Network (GSTN), though legally a 50:50 Union–State entity, operates in practice as a centralised system under the Union’s administrative control. Its governance structure—headed by the Union Revenue Secretary and staffed predominantly by Union officers—has created a “closed-box” architecture, limiting meaningful State oversight.

The Comptroller and Auditor General (CAG) has repeatedly flagged serious deficiencies. Report No. 11 of 2019 noted the absence of key system validations, incomplete audit trails, and restricted data access, impairing enforcement and audit. Report No.5 of 2022 went further, citing such significant inconsistencies that the reliability of GSTN outputs could not be certified. Denial of full data access to both States and the CAG raises fundamental concerns about transparency and accountability.

This centralised design creates structural vulnerabilities. First, it is a single point of failure. When GSTN faces downtime such as the blackouts for several hours at a time on October 20-22, 2020, August 11, 2023, and January 10, 2025, trade compliance halts nationwide. Second, it stifles innovation by imposing a uniform interface unsuited to diverse State contexts. Third, it weakens enforcement by denying States granular, real-time data needed to detect sector-specific evasion patterns (for instance, granite in Rajasthan and textiles in Gujarat).

To address these flaws, GSTN must evolve from a monolithic system to a federated architecture, drawing on the design of India’s highly successful Unified Payments Interface (UPI). In UPI, the back-end (transaction settlement) is unified, while the front-end is decentralised, allowing users to choose among multiple applications—BHIM, Google Pay, Amazon Pay, PhonePe, and others—operating seamlessly on a common network.

GST requires a similar architecture. The back-end (core ledger, IGST settlement, and cross-State invoice matching) must remain unified to preserve market integrity. The front-end (taxpayer interfaces, dashboards, and analytics) should be decentralised. States should be empowered to build their own portals, connected to the national system through open APIs.

The advantages are immediate and substantial. System failures would be localised rather than nationwide. States would gain real-time access to transaction data, enabling independent verification of ITC chains. They could also innovate with user-friendly interfaces and integrate local datasets to improve compliance.

Broken tech backbone

The GST Network (GSTN) was designed as a self-policing system based on invoice matching. A three-step monthly cycle—GSTR-1 (sellers upload invoice-level data, establishing tax liability), GSTR-2 (buyers confirm or modify these entries), and GSTR-3 (the system auto-computes net tax liability based on verified inputs)—was intended to ensure that input tax credit (ITC) could be claimed only when tax was actually paid. This “digital handshake” would have enabled compliance by design and minimised evasion.

In practice, the GSTN could not handle the volume and complexity of real-time reconciliation. Within two months of rollout in 2017, GSTR-2 and GSTR-3 were suspended. In their place, the government introduced GSTR-3B—a simplified, self-assessed return—initially as a temporary measure. Nearly a decade later, this temporary measure has become permanent.

This shift fundamentally dismantled the original architecture. Liability and ITC became self-declared, while verification turned fragmented and retrospective. The core logic of automated matching disappeared, and subsequent tools like GSTR-2A/2B offer only static information without enforcing validation.

The consequences have been grave. The absence of invoice matching has enabled large-scale fraud, with fake firms issuing bogus invoices to facilitate ITC claims without actual tax payment. These entities often vanish before remitting dues, converting fictitious credits into real losses.

Audit findings underscore the scale of the problem. CAG reports have repeatedly flagged weak controls and absence of full automation as key drivers of leakage. A special all-India drive uncovered over 29,000 fake entities involving suspected tax evasion of Rs.44,000 crore in just seven months. In a limited audit sample alone, CAG Report No.25 of 2025 detected compliance deviations of Rs.21,695 crore, and reiterated that the “absence of complete automation” continued to drive leakage.

The federal fallout

The failure has also had serious federal implications. IGST, which accounts for about 51 per cent of GST collections, is meant to transfer revenue seamlessly to the destination State. However, reliance on GSTR-3B—lacking “place of supply” validation—has turned this mechanism into a “black box”, often obscuring the rightful State beneficiary. This led to massive “unsettled IGST,” peaking at Rs.2.11 lakh crore in 2017–18 (CAG Report No. 11 of 2019). Subsequent reductions relied on ad hoc Union settlements and opaque formulas under Section 17(2) of the IGST Act. States remain unable to audit or verify dues, eroding fiscal transparency and trust.

After nearly a decade, GST cannot continue as a trust-based system. It must return to its original design: phase out GSTR-3B, reinstate the GSTR-1/2/3 cycle, and implement system-locked ITC tied to actual tax payment. Restoring automation is essential to protect revenue, reduce compliance burdens, and rebuild credibility in the GST regime.

Strengthen legislative oversight

Under India’s traditional fiscal framework, taxation was a core legislative function that was debated, justified, and legitimised through democratic scrutiny. GST diluted this. Key decisions on rates, exemptions, and compliance are now shaped within the GST Council—an executive body—and presented to Parliament and State Assemblies as fait accompli, reducing them to passive ratifiers.

This creates a serious democratic deficit. The power to tax is the power to burden citizens, and that power must remain answerable by elected representatives. Yet, no institutional mechanism exists that mirrors GST’s own federal character by bringing together Union and State legislators for systematic oversight.

To address this, Article 279A should be amended to establish a Joint Standing Committee of Parliament and State Legislatures on GST. Comprising MPs and MLAs from both ruling and opposition parties, it would act as a federal legislative counterweight to the GST Council. Its mandate should include reviewing tax performance, administrative and technological failures, socio-economic impacts, and State grievances, with powers to summon GST Council Secretariat and GSTN officials. Such a body would not impede GST; it would restore democratic supervision to a system now dominated by executive negotiation.

Case for independent GST dispute settlement authority

The GST framework suffers from a serious institutional gap: the absence of an independent dispute resolution forum. At present, disputes must be taken to the Supreme Court under Article 131—an approach that is slow, adversarial, and ill-suited to the technical and time-sensitive nature of tax administration. Although Article 279A (11) envisages a dispute resolution mechanism, its design is structurally flawed.

First, it creates a clear conflict of interest by empowering the GST Council (which is both policymaker and stakeholder) to adjudicate disputes arising from its own recommendations, violating the basic principle of natural justice that one cannot be a judge in one’s own cause.

Second, the GST Council’s voting structure gives the Union a decisive edge, undermining neutrality in disputes where it is a party.

Third, GST disputes involve sovereign entities (”wholes”), acting under laws enacted by their respective legislatures. An executive body like the GST Council, which is a committee of ministers (”parts”), lacks the legitimacy to constitute a mechanism to adjudicate such disputes—a jurisdiction reserved for the Supreme Court under Article 131.

Fourth, any Council-created administrative mechanism would lack core judicial powers such as granting binding relief or striking down non-conforming laws, rendering it ineffective.

Finally, the Supreme Court’s decision in Mohit Minerals (2022), which clarified that GST Council recommendations are advisory, has sharpened the need for a neutral forum to adjudicate disagreements when States exercise their legislative autonomy.

The omission of an independent authority was a serious missed opportunity. The 2011 Amendment Bill had proposed a GST Dispute Settlement Authority (DSA), chaired by a former Supreme Court judge. However, it was dropped in 2016 despite warnings against vesting adjudicatory power in the GST Council during parliamentary scrutiny by the Rajya Sabha Select Committee.

The consequences became evident during the 2020 compensation dispute, where, in the absence of a neutral adjudicator, the issue was resolved politically rather than legally. States ultimately accepted a borrowing arrangement under pressure, illustrating how power, not principle, prevails in the current system.

A mature federal tax system requires time-bound, expert adjudication. Article 279A (11) should therefore be amended to establish an independent GST Dispute Settlement Authority, chaired by a retired Supreme Court judge, to resolve key fiscal and operational disputes with credibility and finality.

A good and simple tax?

Tesler’s Law of Conservation of Complexity holds that every system contains an irreducible core of complexity. It cannot be eliminated or concealed; it can only be redistributed. The central design question, therefore, is not whether complexity exists, but where it resides and who is required to bear it—the system, the user, particular classes of users, or other stakeholders.

GST has often been described as a “good and simple tax”. Yet, in a neat vindication of Tesler’s Law, GST did not eliminate complexity; it merely redistributed it into a more diffuse—and often more onerous—form. Frequent macro-level rate revisions, an unstable digital backbone, and arbitrary micro-classifications shifted and amplified the compliance burden on firms, particularly smaller enterprises least equipped to manage it—until the September 2025 reforms corrected much of this distortion.

Prior to September 2025, some of the micro classifications bordered on the absurd. Unpacked popcorn was taxed at 5 per cent, packaged at 12 per cent, and caramel popcorn at 18 per cent; now, all are taxed uniformly at 5 per cent. A plain bun was exempt, a packaged bun taxed at 5 per cent, jam at 12 per cent, but a bun with jam at 18 per cent; now, a uniform 5 per cent applies. Apparel and footwear up to Rs. 1,000 were taxed at 5 per cent and those above at 12 per cent; now, the threshold is Rs. 2,500, with items beyond it taxed at 18 per cent. Identical seats attracted 18 per cent in offices but 28 per cent in cars; now, both are taxed at 18 per cent. Such hair-splitting distinctions distorted the logic of a value-added tax and imposed years of avoidable hardship before it was eventually rationalised.

The World Bank (2020) found that Indian firms now spend more time on indirect tax compliance than their counterparts in OECD and other emerging economies. A 2021 survey by the Federation of Indian MSMEs reported that compliance time for small firms nearly doubled in the initial years of GST, while costs rose by 30-50 per cent due to increased reliance on accountants, software, and intermediaries. Industry bodies such as CII and FICCI have also highlighted liquidity stress caused by delays and disputes in input tax credit, especially in thin-margin sectors.

The outcome is structural asymmetry. Larger firms, with deeper administrative capacity, have adapted—and in some cases benefited—from formalisation and cleaner credit chains. MSMEs, by contrast, have borne a disproportionate share of the compliance burden. GST, therefore, has not simplified the system; it has relocated complexity from the state to the marketplace, and within the marketplace, from large enterprises to smaller ones.

Petroleum must remain outside GST until reforms

Article 279A (5) enables the GST Council to recommend bringing petroleum products under GST, but States currently retain taxing powers under Entry 54 of the State List. These taxes—along with those on alcohol and electricity—constitute one of the last major fiscal levers available to States, with petroleum alone contributing about 14 per cent of States’ own tax revenue.

Its inclusion poses serious fiscal risks. Input Tax Credit would erode net revenues, while even the highest GST rate would fall short of current effective tax levels, often exceeding 50 per cent. Without a robust, permanent compensation framework, States could face significant revenue losses.

Given GST’s unresolved weaknesses and uneven revenue performance, inclusion of petroleum should be deferred until systemic reforms are completed and fiscal stability is ensured.

Conclusion

In conclusion, GST remains one of the most ambitious fiscal reforms undertaken in independent India. It has dismantled internal tariff barriers, rationalised a chaotic rate structure, and largely eliminated the regressive cascading of taxes through the Input Tax Credit mechanism. Yet even the most compelling idea falters with incomplete design and uneven execution.

Nearly nine years after its launch, GST remains a work in progress, and the unfinished agenda is substantial. The Union’s penchant for centralisation, coupled with a rushed rollout that privileged speed over completeness and stability, has embedded serious structural weaknesses in the GST regime and invited charges of “coercive fiscal federalism”.

Fiscally, GST has not delivered the buoyancy promised to States. Constitutionally, it has strained cooperative federalism by turning the GST Council into an institution dominated by the Union. Administratively, it has imposed heavy compliance burdens, especially on MSMEs. Technologically, the collapse of the original invoice-matching architecture has fuelled fraud, obscured IGST settlement, and denied States the data they need.

India, therefore, needs GST 2.0: a second generation of reforms rooted in constitutional realism. These reforms must rebalance the Council’s voting structure, clarify the advisory nature of its recommendations, restore limited SGST flexibility, rotate the chairpersonship, create an independent secretariat, reform committee procedures, decentralise GSTN, repair the return architecture, strengthen legislative oversight, establish an independent dispute settlement authority, and defer expansion to petroleum until the core regime is repaired.

GST can still mature into the “good and simple tax” it was meant to be, but only if India chooses partnership over centralisation, trust over control, and constitutional balance over administrative convenience.

[The Justice Kurian Joseph Committee on Union-State Relations, constituted by the Government of Tamil Nadu in April 2025—and of which the author is a member—submitted Part I of its Report in February 2026. The Committee undertook a detailed examination of the Goods and Services Tax (GST), one of the most contentious challenges in Indian federalism, and advanced a set of far-reaching recommendations. This article draws upon Chapter 10 of that Report].

K. Ashok Vardhan Shetty is a retired IAS officer of the Tamil Nadu cadre; a former Vice-Chancellor of the Indian Maritime University, Chennai; and a member of the High-Level Committee on Union-State Relations constituted by the Government of Tamil Nadu.

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