Recent reforms under GST 2.0 have demonstrated that simplification and tax moderation can work alongside strong revenue growth. A white paper from Think Change Forum highlighted the need to freeze peak tax rates and expand the tax base through technology. The report emphasized that the rise in gross GST collections by 4.5% year-on-year to Rs 1.95 lakh crore in October 2025 challenges the notion that higher tax rates are essential for increased collections.
The report pointed out that the increase in tax collection validates the idea that in economies with high informality, compliance elasticity is more significant than rate elasticity. However, it also raised concerns about India’s tax-to-GDP ratio of around 17%, which conceals a narrow direct tax base and heavy reliance on regressive indirect levies. According to author and public speaker Yogendra Kapoor, high taxes, whether direct or indirect, tend to foster evasion and corruption, while lower taxes can broaden the tax base and enhance compliance. Kapoor suggested that ideally, GST should be limited to 5% and 18%, to prevent the creation of a new 40% peak rate that could undermine compliance.
The Think Change Forum urged for the freezing of peak direct tax rates, expanding the direct tax base through technology, avoiding MRP-based taxation, and ensuring the completion of the GST credit chain in the upcoming Union Budget. With the compensation cess set to expire, the forum cautioned against MRP-based taxation in a cash-heavy economy, proposing instead the use of clean, specific duties that are easier to enforce. Additionally, the Budget should present a phased roadmap to bring petroleum, electricity, and other excluded inputs under GST to restore tax neutrality and reduce costs for the industry.
Among other priorities, the forum highlighted the importance of incentivizing productive reinvestment and aggressively tackling the parallel economy. It stressed the need for the Budget to strengthen enforcement against smuggling, illicit trade, and tax evasion, making non-compliance more costly than compliance and ensuring honest taxpayers are not penalized.
