The latest GST reforms introduced in September 2025 have significantly strengthened India's Ease of Doing Business (EoDB), with business registrations growing by approximately 27% from 1.55 lakh in 2020-21 to 1.98 lakh in 2025-26 as of February 2026. The reforms have simplified tax slabs, reduced rates across key sectors, and lowered tax incidence while improving price competitiveness. The effective tax rate, estimated as the ratio of revenue collections to private and government consumption, averaged about 8.5% before the pandemic but declined sharply to 6.5% in 2020-21 and has remained virtually stagnant within a narrow range of 9.5% to 10.3% thereafter. The much-hoped-for improvement in tax compliance due to its self-enforcing nature did not materialize as expected.
The tax's partial coverage remains a major impediment to compliance improvement. In India, 148 commodities under four-digit HSN classification, having almost 50% weighting in the consumer price index, are exempted from GST. Taxpayers with less than ₹1.5 crore turnover can pay tax at a composite rate of 1% without availing input tax credit. In Karnataka specifically, those with less than ₹1.5 crore turnover constitute 93% of taxpayers but account for just 6.5% of turnover and 12% of tax paid. However, recent reforms have addressed some of these gaps, with the Union Budget 2026-27 proposing to enhance duty deferral period for Tier 2 and Tier 3 Authorised Economic Operators (AEO) from 15 days to 30 days to facilitate just-in-time manufacturing. Additionally, correction of inverted duty structures in labour-intensive and agri-input sectors such as textiles and fertilisers has reduced costs and working capital pressures.
Despite the positive business registration trends, economic growth projections suggest a moderation ahead. Fitch Group company BMI has projected India's economic growth to slow to 6.6% in FY27 from 7.7% in FY26, as the boost from last year's GST reforms fades. The firm expects elevated inflation to average 5.4% in FY27, which could keep pressure on real household incomes and private consumption. India is likely to remain the fastest-growing large economy in the Asia-Pacific region, but BMI noted that risks to the outlook are tilted to the downside. The GST reforms introduced in September last year involved tax rate cuts on 375 items and a rationalisation of the earlier four-tier structure into virtually two main slabs of 5% and 18%. BMI expects the initial boost to economic activity from these measures to gradually wear off during FY27, with inflation becoming a more important constraint on consumption.
The reforms have delivered tangible results in expanding the tax base and improving compliance. Registered taxpayers have increased from about 60 lakh in 2017 to over 1.6 crore in January 2026, indicating deeper formalisation of the economy. The RBI's Business Expectations Index, which has consistently stayed above the neutral benchmark of 100 through FY 2024-25 and into Q2 of FY 2025-26, indicates positive sentiment regarding future output, employment, and investment. The Jan Vishwas (Amendment of Provisions) Act, 2023 decriminalized 183 provisions across 42 Acts, thereby reducing criminal liability for minor and technical offences. Under the RCB+ initiative, 4,846 compliances have already been reduced out of 6,262 identified across 23 State-implemented Acts, with the consolidation of 29 Central labour laws into four Labour Codes significantly enhancing EoDB.
Despite revenue challenges, GST has delivered significant indirect benefits to the economy. According to the Ministry of Road Transport & Highways, post-GST, long-distance travel time for trucks has been reduced by 20%. The reform has successfully unified and simplified several consumption taxes, reduced both administration and compliance costs, and harmonised domestic trade taxes by minimising overlap between Union and state taxes while eliminating tax competition. It has helped standardise tax structure and administration across the country despite separate state laws, and abolished multiple check posts, reducing transportation costs and time while eliminating rent-seeking activities. These improvements have been reinforced by the Union Budget 2026-27's measures promoting digital trade facilitation, tax certainty, reduced compliance and litigation, trust-based customs systems, and an investment-friendly tax regime.
