The Relevance of GST Council and the Implementation of Tax Reforms in India: A Critical Analysis

Abstract The introduction of the Goods and Services Tax (GST) in 2017 transformed the indirect tax regime in India as a whole, changing a fragmented system to a single regime. At the center of this transition is the GST Council, a constitutional body comprising representatives from the Centre and states, to decide on tax rates, exemptions and taxation policy. This paper addresses the significance of the GST Council to support tax reform and implementation in India and its role in helping to maintain fiscal federalism on one hand and economic consolidation on the other. The Council is democratic, and has the ability to collectively decide on major matters, such as rate rationalization and compensation policies. It has been particularly useful for dealing with the early difficulties that arose relating to implementation, including the harmonisation of state specific laws and technology through the GST Network. Under its aegis, reforms have increased income collection, cut down on tax evasion by use of digital invoicing, boosted interstate trade by removing cascading effects. But the analysis exposes constraints: in many ways, the voting dynamics of the Council favor the Centre at the expense of the state and equity in revenue sharing. Some barriers to implementation, such as frequent rate changes, complications with compliance for small businesses and delays in refund processes, have impacted efficiency. This also revealed weaknesses in the supply chain and the role of fiscal support, and spurred ad hoc measures that moved away from longer term reform ambitions. For this reason of course, while the GST Council has been the right tool in driving India’s taxation trajectory towards being more simple and transparent, whether it will remain effective or not will depend primarily on reform to achieve greater inclusiveness and flexibility in the reform process. This close look forces us to reconsider the responsibility of keeping good public governance balances to ensure the continuation of economic development and harmony of the federation. Key Words: GST Reform, Governance, Council, Finance 1.Introduction: Pre-GST India’s tax regime was a jumble of central and state taxes including VAT, service tax, excise duties and central sales tax that resulted in cascading effects, inefficiencies, and a hurdle that hindered interstate trade (Maruthi, 2023). This disintegrated approach was less efficient than the transnational economies in comparison with the tax-to-GDP ratio in other developed countries and inhibited international integration. The GST was established by the 101st Constitutional Amendment Act, 2016, intending to “create One Nation, One Tax”, through the absorption of more than fifteen different indirect taxes into a tripartite scheme – GST - at both the central (CGST) and state (SGST) levels and Integrated GST (IGST) for trade between national borders (Garg including both the Union Finance Minister and representatives from the states through collaborative mechanisms; This is cooperative federalism (EY, 2023): it recommends tax rates, exemptions and administrative processes. This article argues that the Council matters not only so as implements and develops new taxation reforms, also analyses the outcomes, identification of obstacles to implementation and discussion of development such as GST 2.0. It is a useful tool that analyzes economic influences and stakeholder points of view and illustrates GST’s transformative potential and areas for improvement. 2.The Role and Relevance of the GST Council: The GST Council is crucial for maintaining a balance of power on the federal side so that the center has one-third of the votes and the states two-thirds, which helps to create state sovereignty (Subramanium, 2025). It is particularly useful for enabling consensus-based decisions (as by 2023, when rate rationalizations resulted in a reduction in the effective GST rate from 14 percent to 11.8 percent), and addressed some of the original large slabs such as 28 percent encouraging evasion (Schindler, 2018). The Council has convened more than 50 such meetings by 2026 and has approved significant reforms, among them e-invoicing, quarterly returns for SMEs, and compensation policies for losses in state revenue (initially: 100 percent for 5 years and extended to 2026) (e.g. International Journal of Research in Pharmaceutical Sciences, 2026). Importantly, it has encouraged fiscal federalism by devolving over 70% of GST revenues to the states, which in recent years (Bhatnagar, 2025) exceeded pre-GST projections by ₹63,000 crores from 2018-2024. However, critics say that it cements dominance, as in instances of compensation cess extensions, potentially betraying pledges of state sovereignty (Subramanium, 2025). Nevertheless, with data up to 2024, state revenues increased from ₹37.5 lakh crore (potential subsumed tax) to ₹46.56 lakh crore, buoyancy also reached 1.15 post-compensation (Bhatnagar, 2025). The Council's flexibility, as reflected in its 2025 reforms that reduced slabs to three levels (5%, 18%, 28%), reflects that it continues to be a useful reference in developing tax policy (Sinha & Gupta, 2025). Implementation of GST in India: On July 1, 2017, GST was implemented, following committee recommendations, including Kelkar (2002) and Chelliah (1991), advocating a single VAT system (Srinivasan, 2021). Modelled after Canadian and Brazilian tax systems, the mechanism includes multi-stage taxation with input tax credit (ITC) to avoid cascading, digital compliance provided by the GST Network (GSTN), and slabs at 0% (essentials) to 28% (luxuries) (Maruthi, 2023). Key milestones are the 122nd Amendment Bill (2014) and roll-out amid demonetization issues. In 2026, registrations topped 50%, monthly collections at ₹1.73 lakh crore (14.4% CAGR) and tracking through e-way bills increased (EY, 2023). Industries such as automobiles have also taken advantage of price reductions (up to 8%) and efficiency in pharmaceuticals via supply chains (Garg & Ahmed, 2021). In essence, implementation created a single market, which stimulated internal trade consistent with a tariff cut and lifted Ease of Doing Business rankings to 63 from 142 (Schindler, 2018). 3.Challenges in Implementation: The Goods and Services Tax (GST) in India (effective 1 July 2017) has faced challenges since the introduction due in part to its complex multi-tier structure that has led to high compliance requirements. The multiple tax slabs of the GST (0%, 5%, 12%, 18%, and 28%) do not align with the simplicity and uniformity that is commonly demanded in a normalised and developed tax system, resulting in classification confusion and increased risk of tax evasion. This complexity imposes heavy reporting requirements on SMEs, like transaction-level data submission and HSN code identification for HSN data, which further drives up administrative expenses in addition to deterring smaller and more informal sectors from formalization. Exporters run up against working capital pressures from the upfront tax they pay for everything they produce, not to mention delays in processing refunds. Such problems are a major cause of dislocations, marginal businesses being either shut down or trade efficiency reduced. The GST Council, created by the Constitution under Article 279A as a federal agency to administer the tax laws, exclusions and policies, is concerned with issues of fiscal federalism and effectiveness of the tax decisions. States worry about reduced fiscal discretion - as decisions on taxing are passed by the Council and the Centre has one-third vote and states two-thirds - resolutions need a three-fourths majority. Such a structure has caused delay in resolving fundamental problems (such as on rate rationalization) and the absence of meetings (as seen in the six-month space in 2025) that allows for swift responses to new challenges. Political fragmentation, and the threat of populist policies (e.g., ad-hoc rate cuts), are undermining the sustainability of the GST regime, as well as the neutrality of revenue and the fair distribution of resources among states. Administrative and procedural complications such as frequent changes to laws, vague provisions on anti-profiteering, and a lack of IT infrastructure also hinder the effective implementation of GST. The GST Network (GSTN) has attracted criticism for system glitches, low availability and an inability to accommodate significant amounts of data matching with input tax credits, leading to regulatory compliance issues for businesses. Excluding vital industries such as petroleum, alcohol, and real estate from the GST ambit leads to a ripple effect that leads to distortions to the input credit chain, and the delayed creation of the GST Appellate Tribunal has resulted in a total backlog of around 8,000 disputes. Transporters and retailers face additional costs, including the installation of radio frequency identification devices for e-way bills, while the lack of clarity in goods categorization contributes to evasion and litigation. Monetarily, these difficulties show in fiscal deficits and sectoral differences, where they may cause losses for different states during slab rationalization in order that they can simplify the system. A 28% initial slab incentivised tax evasion and led to a slow reduction by the Council – but ongoing multi-rate complexities thwart the "One nation, one tax" approach. Small and medium-sized enterprises (SMEs), especially in manufacturing, are subject to high taxes despite lower registration thresholds, while informal sectors are also facing gaps in digital compliance. The solutions are manifold and holistic (e.g. with the involvement of stakeholder consultations of GST 2.0 and broader integration with existing services) and must be adopted to alleviate the negative