9 years of GST: How India’s biggest tax reform has evolved

What began as a bumpy, ambitious experiment in tax restructuring has become a major fiscal reform for the Modi government. When India launched the Goods and Services Tax (GST) on 1 July 2017, it set out to replace a patchwork of central and state levies—including excise duty, service tax, state VAT, entry taxes and octroi—with a shared, destination-based tax.

Nine years on, GST is a central part of India’s public finances. Monthly gross collections have crossed Rs 2 lakh crore, and the taxpayer base has expanded substantially.

GST is a dual system. Intra-state sales attract Central GST (CGST) and State GST (SGST), while inter-state sales and imports attract Integrated GST (IGST), which is apportioned between the Centre and the destination state. At launch, most goods and services fell into four main rate slabs—5%, 12%, 18% and 28%—alongside nil rates for some essentials and special rates for items such as gold.

The biggest recent reset came with GST 2.0, approved by the GST Council on 3 September 2025 and brought into effect on 22 September. It removed the 12% and 28% slabs for most goods and services, leaving two main rates of 5% and 18%, with a 40% rate for selected sin and luxury goods. Everyday items, medicines, small cars and appliances were among the goods that moved to lower rates. The estimated revenue cost was Rs 47,700 crore.

The reform followed years of adjustments to a system that was difficult for many businesses to navigate. Before GST, different indirect taxes operated under different rules, often creating cascading taxes and paperwork at state borders. GST introduced a common framework and an input-tax-credit chain intended to reduce tax-on-tax. A shared digital system has improved the visibility of transactions, though compliance remains demanding for many smaller firms.

The transition was rough. The timing, soon after demonetisation, added to the disruption. Businesses, especially small firms, had to learn new online registration, invoicing and return-filing processes. Multiple rates, frequent clarifications, technology problems, refund delays and invoice reconciliation strained cash flow and raised compliance costs. Exporters and firms facing inverted duty structures also waited for input-tax-credit refunds. Later measures, including simplified returns, e-way bills, e-invoicing for larger firms and datamatching tools to detect fake invoices, addressed most of these problems.

The Covid-19 pandemic was GST’s first major stress test. Lockdowns curtailed sales and disrupted filing, and collections fell sharply in April 2020. Gross GST revenue rose from about Rs 7.41 lakh crore in 2017–18, the first, partial year of the tax, to Rs 11.77 lakh crore in 2018–19 and Rs 12.22 lakh crore in 2019–20. It then fell to Rs 11.37 lakh crore in 2020–21, well below the revenue states had been guaranteed. The Centre borrowed on states’ behalf—Rs 1.1 lakh crore in 2020–21 and Rs 1.59 lakh crore in 2021–22—and passed the funds on as backto-back loans. The compensation cess was extended to service the borrowing.

Collections recovered to Rs 14.83 lakh crore in 2021–22, then rose to Rs 18.08 lakh crore in 2022–23, Rs 20.18 lakh crore in 2023–24 and a record Rs 22.08 lakh crore in 2024–25. Gross collections reached about Rs 22.27 lakh crore in 2025–26. In September 2026, collections rose 14.7% year on year to Rs 2.04 lakh crore, the third consecutive month above Rs 2 lakh crore. Collections for April–September 2026 totalled Rs 12.46 lakh crore, up 11.6% year on year. The registered taxpayer base grew from about 60 lakhs at GST’s launch to around 1.70 crore by September 2026.

Maharashtra was the largest state contributor in 2025–26, with about Rs 3.62 lakh crore, followed by Karnataka at Rs 1.58 lakh crore and Gujarat at Rs 1.35 lakh crore. Tamil Nadu, Haryana and Uttar Pradesh were also among the major contributors.

Around 170 countries use a VAT or GST. Many have a standard rate and a smaller number of reduced rates: Australia’s standard rate is 10%, Singapore’s is 9%, New Zealand’s is 15%, and European Union member states’ standard rates range from 17% to 27%. The United States has no national VAT, relying instead on state and local sales taxes. India’s 18% standard rate is mid-range, and its shared central-state structure has parallels with Canada’s. But India’s multiple rates, excluded sectors and compliance burden have made its system more complex than many peers. GST 2.0 narrows the rate structure, though its effects will take time to assess.

The next phase will depend on keeping the rate map stable, speeding up refunds and appeals, improving support for small businesses, broadening the tax base and deciding whether to bring petroleum products within GST. Alcohol for human consumption remains outside the system. GST’s lasting test is whether simpler compliance and more predictable rules can turn its scale into lower friction, stronger investment and greater taxpayer trust.