Despite no rate cuts, GST process-reforms deliver

Last Thursday’s GST Council decisions should hasten growth in tax revenues as well as GDP.

Hitherto, the rate cuts effected at the September 2025 meeting of the Interstate GST Council have been hailed as a generational reform of the GST regime ushered in during July 2017. The accolade for those decisions, as constituting GST 2.0, is perhaps deserved since, despite a roughly 13% lowering of the average tax rate, collections have risen steadily month after month. In September 2026, revenue crossed the Rs 2 trillion mark, 15% higher than in September 2025. Such buoyancy has enabled the Council to take a longer-term view of this progressive tax rather than viewing it as a measure to immediately augment the exchequers.

This data-backed appreciation of the uniformly imposed indirect tax has undoubtedly improved the fiscal math of the Centre and the 29 states. The all-round positive outcome has also made the State Finance Ministers, who together with the Union Finance Minister constitute the Council, deliberate more cooperatively and constructively in their frequent meetings. This was amply evident at the 57th meeting on October 8, when they unanimously agreed to undertake a slew of meaningful process reforms by revisiting several past decisions and streamlining the future regime.

MAKING THE TAX REGIME CUSTOMERFRIENDLY & WINNING TRUST

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When the changes take effect in the new financial year from April 1, GST, now a major source of revenue, can be expected to become more customer-friendly. Besides easing registration, the changes seek to lower the overall burden on the payer, and ultimately the consumer, by reducing production, distribution, operating and inventory costs. Newly built-in financial incentives are expected to encourage timelier compliance by offering quicker refunds and tax credits.

An environment of greater trust is sought to be created through a decisive decision to take away the powers of arrest vested in tax officials, with enforcement pivoting around civil modes of recovery, interest on delayed payments and proportionate penalties for infractions. The threshold for initiating criminal prosecution stands raised fivefold, from Rs 1 crore to Rs 5 crore. Issuing show cause notices (SCNs), even for pending matters, would require a de minimis threshold of Rs 10,000. The maximum general penalty under Section 125 has also been cut from Rs 25,000 to Rs 10,000.