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Introduction

The Goods and Services Tax (GST), launched on 1 July 2017, unified India’s indirect tax regime, replacing multiple levies. Despite boosting revenue collections and tax compliance, challenges like inverted duty structures, compliance burdens, and disputes persist.  The next-gen GST 2.0 reforms, announced on 79th Independence Day , aim to overcome these hurdles and deepen the foundations of Atmanirbhar Bharat.

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Challenges faced by the existing GST regime

• Inverted Duty Structures: Higher tax on inputs than finished goods causes unutilized credits, cash flow strain, and value chain distortion.
  Eg: In the textiles sector, inputs like man-made fibre attracted 18% GST, while finished garments had 5%, creating unutilized input tax  credits.
• Frequent Classification Disputes: Ambiguous GST rates create litigation, compliance burden, and uncertainty for businesses.
  Eg: Disputes on whether Malabar parathas were taxed at 5% (bread) or 18% (ready-to-eat food) reached courts and the Authority for Advance Rulings(AARs).
• Complex Tax Slabs: The existence of multiple GST slabs (5%, 8%, 12%, 18%, 28%) causes confusion, litigation, and price distortions.
• Compliance Burden: Small businesses faced cumbersome filings and technical glitches.
  Eg: According to a survey by LocalCircles, around 20% of businesses reported difficulty using the GSTN portal due to log-in problems and filing confusion.
• Revenue Dependence on Compensation Cess : States heavily relied on cess, creating fiscal stress hampering fiscal federalism.
  Eg: In FY24, states received over ₹1.44 lakh crore as GST compensation cess, indicating dependence on cess-based revenue.
  

How GST 2.0 overcomes these challenges

• Correction of Inverted Duty Structures: Rationalized rates to reduce unutilized credits.
  Eg: Duty structure changes in textiles and footwear under review by GST Council to lower anomalies.
• Simplified Two-Rate Structure : Moves towards one standard rate and one merit rate.
  Eg: Proposal to eliminate 12% and 28% slabs is under consideration.
• Technology-Driven Compliance : Single monthly returns, GSTN portal upgrades, and auto-matching of invoices will ease small business compliance.
  Eg: The GST Network has introduced the Invoice Management System (IMS) to help taxpayers reconcile invoices with suppliers, ensuring accurate Input Tax Credit (ITC) claims.
• Reducing Dependence on Compensation Cess: A broader tax base and stable collections will reduce states’ fiscal dependence on cess.
• Reduced Litigation via Clarity : Clearer rules and dispute resolution frameworks help minimize legal conflicts and reduce prolonged litigation.

How GST 2.0 strengthens the foundations of the Indian economy

• Boosts Consumption via Lower Rates : Reduced taxes on essential goods increase affordability and spending power for citizens.
  Eg: Under the reforms, items such as ghee, butter, packaged foods, fruit juices, and coconut water could shift from 12% to 5% GST, lowering consumer prices.
• Promotes Atmanirbhar Bharat : Rationalized rates encourage domestic manufacturing and value addition, supporting self-reliance.
  Eg: Duty corrections in electronics manufacturing support PLI schemes for smartphones.
• Increases Investor Confidence: A stable and predictable tax regime attracts domestic and foreign investment.
• Enhances Revenue Buoyancy: Simplified slabs and compliance mechanisms widen the tax base and increase collections.
• Reduces Inflationary Pressure:  Lower indirect taxes decrease production costs, helping moderate consumer prices.

Role of industry in ensuring effective implementation of GST 2.0 reforms

• Active Consultation with Government: Participation in GST Council’s review process.
  Eg: ASSOCHAM submitted sector-specific GST 2.0 suggestions in 2025 pre-budget consultations.
• Digital Adoption for Compliance: Leveraging AI and data analytics for error-free filings.
  Eg: Infosys deploys GST analytics tools to reduce compliance burden.
• Showcasing Case Studies:  Sharing best practices to boost industry confidence.
• Promoting Alternative Dispute Resolution: Reducing prolonged litigation through mediation mechanisms.
  

Conclusion 

The next phase of GST reforms is not just a tax restructuring, but a nation-building exercise. By reducing costs, boosting compliance, and strengthening industry-government collaboration, GST 2.0 will pave the way for a resilient, competitive, and Atmanirbhar India, moving closer to the $5 trillion economy goal.

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