Despite record GST collections in FY 2024–25, several structural challenges persist in India's GST architecture. Enumerate these challenges and suggest reforms for a second-generation GST.

Q. Despite record GST collections in FY 2024–25, several structural challenges persist in India's GST architecture. Enumerate these challenges and suggest reforms for a second-generation GST. (15 marks, 250-350 words)

FY 2024–25 recorded the highest-ever gross GST collection of ₹22.08 lakh crore, growing 9.4% with an average monthly mop-up of ₹1.84 lakh crore [1]. Yet buoyant revenue masks unresolved design, compliance and federal frictions that a second-generation GST must address.

Structural challenges

• Rate complexity: Multiple slabs (0%, 5%, 12%, 18%, 28%) plus compensation cess dilute the "one nation, one tax" promise and invite classification disputes.
• Inverted duty structure: In textiles, footwear and fertilisers, inputs are taxed higher than outputs, blocking working capital through refund backlogs.
• Exclusions: Petroleum products, electricity, alcohol and real estate stay outside GST, breaking the input tax credit chain and cascading costs.
• Evasion and compliance burden: Fake invoicing and fraudulent input tax credit claims persist, prompting the Amnesty Scheme under Section 128A for FY18–20 demands, with dues payable by March 2025 [2]. Small firms still face heavy return-filing costs.
• Federal frictions: The compensation cess sunset (June 2022) and IGST apportionment disputes strain trust. In Union of India v. Mohit Minerals (2022), the Supreme Court held GST Council recommendations to be persuasive, not binding, making consensus harder yet more essential [3].
• Moderating growth: Collections grew only 3.2% y-o-y in May 2026, indicating the revenue base is maturing rather than expanding.

Reforms for a second-generation GST

• Slab rationalisation towards a merit–standard–demerit three-rate structure, correcting inverted duties.
• Phased inclusion of petroleum, electricity and real estate, beginning with natural gas and ATF.
• Compliance easing: fully automated refunds, pre-filled returns, and simplified filing for small taxpayers.
• Dispute resolution: operationalising GST Appellate Tribunal benches to clear pending litigation.
• Federal trust-building: a transparent, formula-based IGST settlement calendar and a strengthened Council secretariat.

GST's revenue strength has been established; its next task is efficiency and equity. Anchored in the cooperative federalism of Article 279A, a simplified, wider-based GST can raise buoyancy while lowering the compliance burden — advancing the constitutional vision of a common national market.

(~330 words)

Sources: 1. PIB — Record Gross GST collection in 2024–25 (₹22.08 lakh crore, 9.4% growth) — FY 2024–25 record annual collection and average monthly figure 2. PIB — Last date to pay tax dues under Amnesty Scheme is March 31, 2025 (Section 128A, CGST Act) — amnesty for FY18–20 demands; compliance/evasion backlog 3. Supreme Court of India — Union of India v. M/s Mohit Minerals Pvt. Ltd., judgment dated 19 May 2022 — GST Council recommendations are recommendatory, not binding