GST 2.0: A tax reform that could deliver a more competitive India

The announcement of next-generation goods and services tax (GST) reforms by India’s Prime Minister Narendra Modi on the occasion of our 79th Independence Day is a landmark moment for the nation.

Eight years after the historic implementation of GST, which subsumed a complex web of indirect taxes into a unified system, this reform is ready for its second phase. The new agenda, centred on a structural revision aimed at rate rationalization and ease of living, promises to further consolidate India’s economic transformation and deepen the foundations of Atmanirbhar Bharat. It is in this spirit that the Prime Minister has heralded GST 2.0.

Addressing Longstanding Challenges

GST 2.0 would not only address longstanding challenges, but also position India’s indirect tax architecture well to meet the aspirations of a fast-growing economy that is seeking to expand its global footprint.

One of the pressing concerns over the current GST regime has been inverted duty structures in several sectors, where inputs attract higher taxes than final products. This anomaly has resulted in the accumulation of unutilized input tax credits, raising costs for industry and creating distortions in value chains. By promising to correct these structures, the government has signalled strong support for domestic value addition, competitiveness and ‘Make in India.’

Ensuring Stability and Predictability

Equally important is the focus on resolving classification disputes that have burdened industry with litigation and uncertainty. The emphasis on stability and predictability is particularly welcome, as it will inspire greater confidence among global investors looking at India as a reliable destination.

Rate Rationalization: Towards Simplicity

Another major thrust of GST 2.0 is rate rationalization. The move towards a simplified two-rate structure—one standard rate and one merit rate, with only a few exceptions—has long been an aspiration of the CII membership. This shift will substantially cut complexity, improve compliance and strengthen the integrity of this tax system.

Relief for Citizens, Farmers and MSMEs

The decision to reduce taxes on essential and aspirational goods will directly benefit the common man, farmers and MSMEs. By enhancing affordability and boosting consumption, it will provide a demand stimulus to the economy. At the same time, rationalization will help eliminate distortions and create a fairer and more transparent tax framework, promoting efficiency across sectors. The expiry of the GST compensation cess will also open up opportunities for the government to consider bold steps on rate restructuring without compromising revenue sustainability.

Ease of Compliance Through Technology

The reforms also focus on ease of compliance, particularly for small businesses and startups. Technology-driven solutions such as seamless registration, pre-filled returns and automated refunds will substantially reduce administrative burden. Faster refunds for exporters and sectors affected by inverted duty structures will support working capital and strengthen India’s competitiveness in global markets.

Benefits for Ordinary Citizens

For ordinary citizens, these changes mean quicker processes and a more transparent and responsive tax system. GST 2.0 will therefore ensure that the benefits of reform in terms of ease of living are not limited to businesses, but are experienced by households and individuals across the country.

Role of Industry in Implementation

While GST 2.0 sets the stage for transformative change, its success will depend on effective implementation and partnerships among stakeholders. It is here that industry has a pivotal role to play in this journey.

First, businesses must actively participate in the consultative processes being led by the GST Council and states to ensure that sector-specific issues are effectively addressed. Constructive engagement will help the government refine rate structures and compliance systems to maximize benefits. Second, industry must commit to full and timely compliance, leveraging digital tools and data analytics to align with GST 2.0. Businesses can thus reinforce trust in the tax framework and contribute to a robust formal economy. Third, industry should showcase case studies of efficient GST adoption, particularly in sectors where supply chains are complex. Demonstrating how reforms reduce costs and improve competitiveness will encourage wider participation and compliance. Fourth, by engaging in alternative dispute resolution mechanisms and providing constructive feedback to GST authorities, industry can help reduce litigation and support faster, consensus-driven resolutions. Finally, a collaborative mechanism will enhance trust and accelerate implementation.

Cumulative Benefits of GST 2.0

The cumulative benefits of GST 2.0 will be far-reaching. Simplified rates and enhanced compliance ease will reduce costs, boost consumption and promote investment. They will also help expand the tax base and create greater buoyancy in revenue for the government. In fact, GST 2.0 is an economic stimulus of sorts, since indirect taxes have a direct bearing on the cost of products and services. CII believes this would also have a salutary impact on inflation, giving monetary policy action more space to promote growth.

The announcement of GST 2.0 therefore carries the promise of a stronger, fairer and more competitive India.

The article first appeared in Mint, dated 18 August 2025.