Not just a stimulus: Why GST 2.0 is a foundational reform

From complexity to clarity: In the last eight years, GST has already delivered substantial dividends—it streamlined indirect taxes, dismantled inter-state barriers and curbed the cascading effect of levies on inputs along value chains. However, operational challenges on account of complexities, compliance burdens, delays and classification disputes held back its full potential.

The latest reforms attempt to address these challenges head-on. The transition to a two-slab structure, rationalization of rates across essentials as well as growth sectors and a pivot to faster refunds as well as dispute resolution are expected to reduce tax uncertainty and compliance costs. This signals a policy focus on reducing friction, improving the ease of doing business and enabling better capital planning. If implemented well, these reforms have the potential to strengthen India’s position as a globally competitive manufacturing and services hub.

Clearer classification, fixed duty structures and the correction of inverted duty structures will help boost domestic value addition and exports.

Another significant change is the elimination of intermediary service provisions, a subject of ongoing litigation over whether certain services qualified as exports. With such services now clearly being recognized as exports, this ambiguity stands resolved, better equipping Indian firms to compete on the global stage. This supports India’s broader goal of becoming a leading exporter of services, complementing the country’s manufacturing-driven growth agenda.

The underlying intent of these reforms is clear—accelerate business growth. A simplified GST framework reduces transactional friction, speeds up working-capital cycles and fosters faster decision-making. Reforms such as faster, systems-driven provisional refunds for exporters and a streamlined GST registration process for small-sellers, especially those operating via e-commerce platforms, can unlock capital and ease operational burdens, especially for micro, small and medium enterprises (MSMEs).

Further, the launch of the GST Appellate Tribunal will accelerate dispute resolution, reduce litigation costs and build trust in the system, all of which are critical to attract domestic and foreign investment.

Fuel demand: Together with the direct tax relief announced in the Union budget, the rationalization of rates for essential goods and services is expected to enhance affordability and purchasing power, thus boosting consumption. As businesses pass on these benefits, demand is expected to strengthen, creating a ripple effect across the value chain. The creation of a consumption-driven virtuous cycle should further lead to higher production, investment and job creation, and thus have a multiplier effect on the economy.

From a macroeconomic standpoint, it is a strategic move that seeks to balance the reduction in near-term tax collections with long-term tax buoyancy. As compliance improves and the tax base widens, collections should recover naturally on a more sustainable foundation. The tax-rate cuts will also help reduce the gap between the organized and unorganized sectors and contribute to the formalization of the economy.

A trust-based model: Perhaps the most critical shift is the transition from adversarial enforcement to a trust-based tax administration that relies on data, technology and self-compliance. This approach suggests an expectation of maturity as India achieves an ecosystem where tax compliance is a norm, not a burden. By opting to not extend anti-profiteering provisions, the government is also demonstrating trust in Indian industry to voluntarily pass on the tax benefits to consumers.

Evolution ahead: GST has helped expand the taxpayer base, boosting collections and supporting the formalization of India’s economy. The reforms aim to support these structural gains through reduced friction and higher inclusion, especially for households, MSMEs and exporters. While these reforms are substantial, they lay a foundation for deeper structural shifts, including a review of the GST legislation, especially in areas prone to disputes.

Other initiatives may include liberalizing input tax credit (ITC), allowing nationwide cross-utilization of central GST or even enabling tradable ITC scrips. Products such as aviation turbine fuel and liquefied natural gas, which are still outside GST’s purview, should be next in line for inclusion, further unifying the tax base and eliminating artificial inefficiencies. The long-term vision should be of a simplified, dispute-free and fully-integrated GST regime that reduces compliance costs and enhances the ease of doing business at every level.

The ambition is clear: Simplified taxation, clarity in regulation and higher economic participation. But these reforms are not a silver bullet. While they strengthen the indirect tax ecosystem, their true test will lie in a transparent pass-through, clean execution and steady enforcement. As businesses embrace these reforms and authorities transition to trust-first enforcement, the country will soon have a structural foundation for growth and global competitiveness. It is more than just a festive stimulus.

The author is chairperson, PwC in India