It has been eight years since the Goods and Services Tax (GST) took effect, unifying 17 taxes and 13 cesses. Tax collections have doubled in the last five years. From just over ₹11 lakh crore in FY21, the total mop-up now stands at more than ₹22 lakh crore for FY25.The average monthly collections have also seen steady growth—from less than ₹1 lakh crore in FY21 to more than ₹1.8 lakh crore in FY25. The overall tax base has nearly tripled. In 2017, there were 65 lakh establishments and individuals registered as taxpayers. As of 2025, we have more than 1.5 crore registered taxpayers.
But the call for reforms continues—there is a need to expand the tax base further and simplify the five-slab tax structure. There are calls to widen the ambit of the GST to include petroleum products, alcohol, among other items.
So, to discuss the hits, misses and the road ahead for GST, CNBC-TV18 spoke to Tarun Bajaj, Former Revenue Secretary; and Najib Shah, Former Chairman of CBIC.Below is the verbatim transcript of the discussion.Q: As we take stock of eight years of the implementation of the Goods and Services Tax—and I pointed out many numbers that tell us about the many changes that have taken place—in your view, what would you qualify as the single biggest success and also the single biggest miss of the GST so far?Bajaj: I think you mentioned a number of figures which reflect the achievements of GST over these eight years. When I joined, there were still a lot of hiccups in the implementation process. I recall my first interview with you, where you asked whether we would cross ₹1 lakh crore in the next month. I think we’ve crossed that milestone.There is now acceptance of GST. At that stage, states, industry—everyone was questioning whether GST was the right step and whether we had implemented it correctly. That faith has now been restored. Everyone, including states and industry, feels satisfied. Surveys conducted this year also reflect this sentiment.So, I’d say the biggest success is the acceptance of GST. I won’t go into technicalities—you’ve mentioned the numbers. Technology has also improved significantly. Initially, there were several problems, but now it has stabilised. It helps both the department and taxpayers—making compliance and return filing easier for taxpayers, and enabling the department to use AI analytics to identify fraud or tax evasion.So yes, if you ask me, acceptance is the biggest achievement. No one questions GST anymore. In fact, the demand now is to bring petroleum products and other excluded items into the GST framework.Q: We’ve now reached a record ₹2.37 lakh crore in April. The June GST collection came in at ₹1.85 lakh crore. The government’s hope is to consistently hit the ₹2 lakh crore run rate, though June was slightly lower. As we look forward, what should be the top priority? The big ask now is that the five-rate structure must change. There needs to be simplification. Do you believe this is the single biggest priority for the government and the GST Council?Shah: Yes, I would think that’s going to be a major priority, and also the biggest challenge. Everyone agrees that some kind of rate rationalisation is essential, but implementing it will be difficult.Should we merge the 5% and 12% slabs? Or merge 12% and 18%? Either way, some commodity rates will go up, and others will go down. Remember, these rates were designed keeping both equity and revenue concerns in mind. Ideally, a tax administrator would prefer a single rate—but that’s not practical.Even three rates have posed problems. No one has come up with a politically viable and practical solution. So, this will be a big challenge, but also an opportunity going forward.Beyond rate rationalisation, we must keep looking at administrative issues: blockage of input tax credit, difficulties in registration, excessive audit, and issuance of notices that cause concern but don’t yield actual revenue. These compliance issues should be simplified further—and this can be done by the administration without the GST Council.A GST tribunal is also urgently needed. Everyone agrees it’s essential, but action is pending.Bringing petroleum products into GST will also be tough. Neither the Centre nor the states are eager, as these products are major revenue sources. So yes, there are opportunities and challenges—but all of them can be addressed through greater cooperation between the Centre and states.Q: Mr. Bajaj, if my memory serves me right, it was during your tenure as Revenue Secretary that the only interim report of the Group of Ministers (GoM) on rate rationalisation was submitted. That report had, I believe, recommended doing away with the 12% slab. As you look at the situation today—what do you realistically expect? Not just what we hope for, but what is politically viable when it comes to rate rationalisation?Bajaj: I can’t recall whether the interim report was submitted or not, but I do remember that the GoM was formed during my tenure.I completely agree with Mr. Shah. This is the benefit of having people who’ve worked inside the system. Ideally, we should reduce four slabs (5%, 12%, 18%, 28%) to three—say, 5%, 12%/18%, and 28%, or some other configuration. But states will be concerned about revenue neutrality.Revenue neutrality isn’t hard to calculate, but the challenge lies in deciding the rate bands. If you retain 5% and 18%, the gap is too wide, and pressure will build to shift items to 5%. But if you shift too many to 5%, input tax credit (ITC) gets blocked. That causes cascading. Alternatively, you can have 8% and 16%, and maintain revenue neutrality.These are very challenging choices. When you work on the details, complications arise. For instance, apparel and textiles currently face inverted duty. If you move them from 12% to 5%, the problem gets worse.So, this will be a tough negotiation. It will require strong negotiating skills, especially from central officers, to convince everyone on how to proceed. I remember telling people—I’m just trying to stabilise GST; this is not the time for major changes. But I was always open to suggestions. I’d say, “Give me a full list of what should go into 5% and 18%,” but nobody wanted to take that call.It’s a difficult decision. Those moving to lower tax rates will be happy, but those moving up will raise a ruckus. And the political executive has to manage that noise. States are also concerned about maintaining the revenue flow. GST has finally started yielding consistent revenue, and states don’t want to disrupt that.Lastly, having attended many GST Council meetings—when even two states strongly oppose something, you have to convince them. You can’t bulldoze decisions. That’s how the Council has worked. So, it takes time and consensus—also the backing of industry associations like FICCI and CII. It’s easier said than done. I fully agree with Mr. Shah—it’s extremely challenging. But it has to be done. We should eventually reduce the slabs to three, and maybe, as our per capita income rises, reduce it further to two in the future.Q: Mr. Bajaj, let me ask you this—what would your ideal three-rate structure be? And I’ll ask the same of Mr. Shah.Bajaj: It’s difficult to answer hypothetically, because I’d like to know the revenue data first. But broadly, I know around 70–75% of revenue comes from the 18% slab, and 9–10% from the other two slabs.So, technically, I’d say the gap between 5% and 18% is too wide. It causes classification issues. I’d prefer rates like 8% and 16%. But if we move 5% to 8%, essential commodities consumed by the poorest will get costlier, and that creates a political problem.So yes, ideally 8% and 16%, and the third slab remains at 28%.Q: Mr. Shah, what would your ideal structure be?Shah: I think 5% should continue—that slab covers many basic necessity items.I would suggest merging 12% and 18% into 15% or 16%. This assumes that we also prune the long list of exemptions. Ideally, a value-added tax system should not have exemptions, because they break the input tax credit chain and hurt GST efficiency.As for the 28% slab, we need to review what’s in it. Many items considered luxuries in 2017 may not be luxuries in 2025. We could move those items down to the merged slab and reserve 28% (or even increase it to 30%) for genuine luxury or sin goods.Ideally, we move to a three-rate structure, and also phase out the compensation cess by March 2026. The states have been doing well with revenue collections, so we should aim to eliminate the cess, which also distorts the tax system.Q: Let’s address the issue of compensation and the role of states. I’m looking at the numbers that the government has put out from FY19 to FY24. States, if they had continued with pre-GST rates, could have earned only ₹37.5 lakh crore. Under GST, their revenue climbed to ₹46.56 lakh crore. The buoyancy for states improved from 0.72% pre-GST to 1.22% during 2018 to 2023, showing enhanced state capacity. Mr. Bajaj, what do you make of the possibility of merging the compensation cess with the GST rate itself? What is likely, or what should happen post-March 2026?Bajaj: It’s very difficult to do crystal gazing on this issue, but just to give you a perspective on the cess—I may not be fully updated on the latest figures—but the cess revenue should be close to ₹1.2–1.4 lakh crore a year, based on past trends.Right now, this cess money is being used to repay the loan taken during the pandemic, which means neither the Centre nor the states are currently getting any funds from the cess. In fact, they haven’t been getting any revenue from it for the last two or more years—this stopped during my tenure as Revenue Secretary.Now, according to me, there are two things we need to do. There are certain items in the 28% bracket that also have a cess levied on them. We really need to examine whether what was relevant in 2017 still applies in 2025. For example, even the smallest car—with a 1200cc engine and less than four metres in length—has a cess, albeit only 1%. All motor vehicles attract cess, ranging from 1–3% and going up to 22%, depending on size and engine capacity.So, if this cess is giving us about ₹1.4 lakh crore—which would accrue to the Centre if it is subsumed into the tax base—then I think there is a case, as Mr. Shah also pointed out, to revisit the 28% bracket. For example, reducing rates on items like cement may result in some revenue loss for the states. But perhaps this is the right time to do it, especially if you have another ₹1.4 lakh crore coming in through the cess being merged with GST.Another important issue Mr. Shah highlighted is that the whole philosophy of GST is to be a value-added tax, but input tax credit (ITC) is being blocked at various stages. Recently, ITC was blocked for the real estate leasing business. The Supreme Court upheld it, but the government reversed the decision via an amendment.So, if we do have fiscal space from the cess—say ₹1.4 lakh crore—then the government can think about giving up ₹30,000–40,000 crore to enable such reforms and move toward a true GST. Maybe we can’t do everything at once, but we can begin moving in that direction.Coming to your specific question on the cess, I have two points. What I read in the newspapers is that the cess is likely to be converted into another type of cess. States will, quite reasonably, argue that any additional funds raised through a new cess must be shared with them—and I think that is a fair demand.Whether this cess can be replaced by another cess without a constitutional amendment is something I’m not too sure about. If it requires an amendment, then it becomes a longer process.Now, under the current law, the 28% rate can be increased to 40%. But if you want to go beyond 40%—which may be needed for items like fizzy drinks, cigarettes, and pan masala—you might need to amend the CGST Act.So, either way, the guiding principle should be: share the proceeds with the states and use part of the revenue for implementing the reforms Mr. Shah mentioned, which are being widely discussed as part of GST 2.0.Q: As Mr. Bajaj pointed out, it’s a fair ask on the part of states that if a new cess were to be introduced—how should it be introduced, will it require an amendment, and what should the way forward be, especially as we also consider pruning and rationalising the 28% slab?Shah: The compensation cess was introduced for a specific purpose—to assure the states that if GST hurt their revenue, the Centre would compensate them. That purpose has now been more than adequately served. What has happened is that states have become dependent on this bonanza, which continues even after the guaranteed period, which was extended for good reasons.Now, if the compensation cess is replaced with two or three other types of cesses—which has been speculated—it would not be a good idea. By definition, cesses are meant for specific purposes. If the purpose is to permanently compensate states for GST-related revenue loss, then that effectively makes the cess a permanent part of our tax policy—which is not ideal.If the cess is to go, then we must look at merging it into the 28% rate, at least for so-called “sin goods” like tobacco and aerated beverages. That could take the rate up to 40–45%. So be it—if that’s acceptable to everyone.But I believe the cess must go. The compensation cess must go. There are still many other cesses being levied in the Union Budget—and the government should take a call on these as well. GST was supposed to subsume all such levies.If, however, there is a continued need to compensate states, then raise the 28% rate on sin goods to 40–45%, or whatever rate you arrive at. Yes, it will be a very high rate and an outlier in the tax structure, but if that’s the way forward, then so be it.Q: Many people argue that perhaps we need a GST Council-like body to resolve other national issues, to foster Centre-state cooperation. Mr. Bajaj, what do you think has been the most significant aspect of the GST Council’s functioning? All decisions have been by consensus—what is the significance of that?Bajaj: I’ve heard similar suggestions from the education ministry, the agriculture ministry, and others—that they should also have a GST Council-like mechanism.My view is that the Constitution already provides a mechanism—the Inter-State Council—that can discuss such matters. But what happens in GST is very different from the Inter-State Council.In the Inter-State Council, you distribute an agenda, the Chief Ministers come, and they speak on issues from their state’s perspective. It’s difficult to reach decisions there, even on three or four items.In contrast, in the GST Council, ministers meet, and decisions are reached through consensus. A lot of work happens behind the scenes. There are officer-level groups, committees, and teams that coordinate with state officials and political leadership. I’d say 90% of the work is done before the Council meeting. In the meeting, the remaining 10%—the contentious items—are discussed, and the maturity of the political leadership helps resolve them.So, what you see as the final outcome is the result of extensive groundwork. Whether that model can be replicated in other sectors—I’m doubtful. GST is a different ball game altogether. But yes, the Council has been a success, and I’ve enjoyed participating in every meeting.Q: Mr. Shah, before I let you go, what is your most cherished memory of the GST Council meetings?Shah: The enormous patience of Mr. Arun Jaitley—to build consensus, to listen to diverse opinions, to hear out different political parties, and ultimately guide everyone toward agreement. That was phenomenal. If not for him, I don’t believe GST would have come into effect when it did.
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