Nine years of GST: The roadmap from compliance efficiency to economic efficiency
By Divyesh Lapsiwala and Puja P PatkeAs we complete nine years of GST, the emphasis must now shift from stabilisation to optimisation. The architecture is in place, the digital backbone is robust, and the tax base has expanded. The next phase should focus on making GST more neutral, predictable and business-friendly.In our view, the reform agenda should now revolve around a few key priorities.GST frameworkA fundamental gap in the GST structure continues to be the exclusion of petroleum, electricity and real estate. Taxes paid on these inputs remain embedded in costs and result in cascading across sectors. Industries with high energy consumption or significant real estate exposure are particularly impacted.A calibrated roadmap is required to bring these sectors within GST. This will need a careful assessment of State revenues and a transition mechanism. However, unless these sectors are included, the objective of seamless credit across the value chain will remain incomplete.At the same time, the rate and classification framework needs further maturity. While GST has moved towards a more streamlined rate structure, classification disputes continue due to granular schedules and divergent interpretations.A centralised, continuously updated classification compendium with illustrations and industry guidance will bring consistency. Rate changes should also, as a principle, be prospective with adequate implementation timelines.Input tax credit as the core architectureThe most critical reform area is input tax credit (ITC). GST neutrality depends on seamless credit, yet ITC continues to be treated as a concession rather than as the backbone of the system.A large proportion of litigation arises from restrictive interpretations of credit eligibility. Blocked credits, reversal provisions and vendor compliance dependencies have made the credit chain less predictable.Section 17(5) requires a comprehensive review. Several expenditures incurred in the course of business continue to be ineligible for credit, leading to cascading and increased costs. The guiding principle should be clear—any expenditure incurred in the course or furtherance of business should be creditable, except where explicitly restricted for anti-abuse reasons.Similarly, restrictions relating to infrastructure and construction need a more nuanced approach. In many sectors, assets such as data centres, warehouses or specialised facilities are integral to revenue generation. Treating such assets as restricted credit categories goes against the principle of neutrality.Another important aspect is protection of bona fide recipients. Credit denial in cases of supplier non-compliance, retrospective cancellation of registrations, or reporting mismatches creates undue hardship. Where the recipient has acted in good faith and undertaken reasonable diligence, recovery should first be pursued against the supplier.Managing ITC accumulation and refundsAccumulation of ITC continues to be a significant issue, driven by inverted duty structures, export-led models and restrictions on utilisation. This results in working capital blockage and affects business efficiency.There is a need to introduce mechanisms for monetisation and efficient utilisation of credit. This could include enabling transfer of credit across GST registrations under the same PAN, allowing greater flexibility in utilisation of different credit pools, and re-examining situations where tax under reverse charge is required to be paid in cash despite being revenue neutral.Refund frameworks also require alignment with the principle of neutrality. Inverted duty refunds should be extended to input services and capital goods. Similarly, export refunds should consider inclusion of capital goods credit, possibly on a proportionate basis.Sector-specific distortions should also be addressed. For instance, where output rates are deliberately reduced for policy reasons, such as in healthcare, corresponding adjustments in input credit or refunds should be ensured to avoid cost build-up in the supply chain.Aligning place and time of supply with modern business modelsEvolving business models, especially in the digital economy, have outpaced traditional place-of-supply provisions. Cross-border services, platform-based models and remote delivery structures often involve multiple jurisdictions, leading to ambiguity.A comprehensive and principle-based framework for determining place of supply in digital and hybrid transactions is required. Clear guidance with illustrations will help reduce disputes and create consistency.The proposed changes to intermediary provisions are a significant step. Aligning place of supply with the location of the customer restores the destination-based principle and supports export competitiveness. However, this will require clear transition rules and alignment of existing circulars to avoid litigation for past periods.The timing of tax liability is another area requiring attention. In certain sectors, especially where payments are linked to long credit cycles (eg supplies to Government), the current time-of-supply provisions create working capital stress. Aligning tax liability more closely with actual receipt of consideration in such cases would bring relief.Simplifying registration and marketplace complianceThe GST registration framework also needs to evolve in line with modern business practices. Small suppliers operating through e-commerce platforms continue to face multi-state registration requirements, creating a disproportionate compliance burden.A move towards a simplified, national registration model for small marketplace sellers, supported by transaction-level reporting by platforms, will significantly improve ease of doing business. The focus should shift from registration complexity to transaction traceability.Similarly, provisions requiring registration solely for reverse charge obligations should be rationalised, particularly where exposure is limited.Providing clarity on recurring issuesA mature GST system must proactively address recurring areas of dispute through clear and practical guidance. Issues relating to related-party valuation, cross-charge versus ISD, corporate guarantees, reimbursements, job work and infrastructure contracts continue to create litigation.The approach should shift from strict interpretation to principle-based guidance. Where transactions are revenue neutral due to full credit availability, compliance requirements and valuation disputes should be simplified.Introduction of safe harbours, decision frameworks and sector-specific guidance can significantly reduce interpretational disputes.Reforming audit and dispute resolutionThe current audit and adjudication framework often results in duplication, inconsistent interpretations and increased compliance burden, especially for pan-India taxpayers.A more coordinated approach to audits, particularly for large taxpayers, would improve efficiency. A centralised or harmonised audit framework can help ensure consistency and reduce duplication across jurisdictions.Quality of adjudication also needs improvement. Pre-notice consultation for non-fraud cases, detailed articulation of facts and legal basis in notices, and internal review mechanisms for recurring issues can reduce avoidable litigation.The strengthening of institutional mechanisms, including GSTAT, will be central to improving dispute resolution. Consistency in interpretation and timely disposal of appeals will be key to building taxpayer confidence.Driving ease of doing businessFinally, GST should recognise and reward compliance. A ‘trusted taxpayer’ framework for compliant entities can reduce administrative friction through lower audit frequency, faster refunds and simplified processes.Technology should be leveraged to improve transparency rather than increase compliance burden. Providing taxpayers with visibility into risk flags, mismatches and opportunities for self-correction before initiation of proceedings will improve voluntary compliance.There is also a need to reinforce the principle of “one law, one interpretation”. While GST’s federal structure is a strength, divergence in implementation across States increases cost and uncertainty for businesses operating nationally.GST has evolved significantly over the last nine years, supported by continuous policy refinements and technological advancements. The next phase should focus on strengthening the core principles—neutrality, certainty and simplicity.The reform agenda outlined above is not merely about incremental change. It is about ensuring that GST delivers on its foundational promise of being a seamless, destination-based consumption tax.As we enter the tenth year, the opportunity is to move from compliance efficiency to economic efficiency. That shift will define the long-term success of GST as a competitiveness reform for India.(Divyesh Lapsiwala and Puja P Patke are Tax Partners at EY India)
