IAS/UPSC Coaching Institute  

05 Jul 2025 : Cease the cess

 Editorial 2: Cease the cess

Context

Weak GST revenues underscore the need for systemic corrections.

 

Introduction

The Goods and Services Tax (GST), now in its eighth year, was envisioned as a landmark reform for creating a unified indirect tax system across India. However, stagnant revenue growth, structural inefficiencies, and the continued exclusion of fuel and alcohol expose its limitations. To achieve the goal of "one nation, one tax", urgent policy corrections are now indispensable.

 

Sluggish GST Growth: Signs of Structural Issues

  • GST collections in June 2025 stood at ₹1.85 lakh crore — the lowest in 4 months.
  • Growth was only 6.2% compared to June 2024 — the slowest in 4 years.
  • Net revenue (after refunds) rose by just 3.3%, showing weak fiscal returns
  • Revenue from domestic transactions (excluding imports) increased by only 4.6%, barely above the average inflation rate.
  • As a consumption-based tax, low GST collections indicate both a slowdown in economic activity and systemic inefficiencies.

 

Inclusion of Fuel and Alcohol: An Unfinished Reform

  • Fuel and alcohol remain outside the GST framework, despite the “one nation, one tax” promise.
  • State governments resist inclusion, as these are among their few independent revenue sources.
  • However, permanent exclusion weakens the integrity and comprehensiveness of the GST regime.
  • The Centre should increase States’ share in central taxes to offset potential revenue losses
  • States must avoid using the additional revenue for untargeted election-time freebies

 

Rationalisation of GST Rates and Cess Removal

  • Simplification of GST rate slabs is overdue; committees are currently reviewing the structure.
  • The GST Compensation Cess, levied over the 28% slab, was meant to offset States’ revenue losses post-GST rollout.
  • It was extended till March 2026 to repay pandemic-related loans
  • With its job done, the cess should be removed rather than absorbed into the main GST structure.
  • Removing outdated cesses can rebuild public trust and stimulate urban consumption.

 

Restoring Trust and Efficiency

  • Eight years on, GST requires structural reforms, not just slogans.
  • The system must be inclusive, efficient, and based on mutual trust.
  • Genuine reform calls for Centre–State cooperation and transparent, citizen-friendly taxation

 

Conclusion

India’s GST framework stands at a crucial crossroads. To ensure long-term efficiency and fairness, the government must focus on rate simplification, cess removal, and a broader tax base. Strengthening Centre–State fiscal relations, curbing untargeted spending, and honouring cooperative federalism will restore trust. It is time to transform GST from a mere reform to a truly inclusive tax regime.