"Moving from enforcement-centric to trust-based tax administration can improve compliance without weakening revenue." Critically examine this with reference to recent GST reforms.

Trust-based administration assumes the taxpayer is honest and uses risk analysis to decide whom to scrutinise. The GST Council's October 2026 recommendations remove arrest provisions, decriminalise more offences and simplify procedures [1]. They test this idea. The statement largely holds, but only if safeguards against fraud are kept.

Recent GST reforms reflecting the shift

• Decriminalisation: In 2022, the 48th Council meeting raised the prosecution threshold from ₹1 crore to ₹2 crore. It decriminalised the offences in Sec 132(1)(g), (j) and (k) and cut compounding to 25–100% of the tax amount [2].
• Risk-based refunds: The 56th meeting (2025) allowed a 90% provisional refund after a system risk check. It also moved to two main rates of 5% and 18% [3].
• Arrest provisions removed: The stated aims are faster decisions and lower compliance costs [1].

Why compliance can improve without revenue loss

• Arrest was never the main revenue tool: In 2023-24 there were 20,582 offence cases but only 223 arrests [4].
• Ends coercive "self-payment": In Radhika Agarwal (2025), the Supreme Court held that extracting tax by threatening arrest is against the rule of law [4]. Of ₹2,30,332 crore "detected", only ₹31,758 crore was recovered [4]. The threat of arrest pushed taxpayers to pay estimated amounts before assessment.
• Formalisation: Lower costs and faster refunds give MSMEs a reason to stay in the tax net, which widens the tax base.
• Smarter enforcement: Risk analysis frees officers to focus on high-risk taxpayers.

Limitations

• Fake-invoice rings: Between 2020 and 2023, DGGI found 6,000+ fake ITC cases involving ₹57,000+ crore of evasion [5]. Paper firms have no assets to attach, so a fine or tax demand achieves little.
• Weak recovery: Only about 9% of detected ITC fraud was recovered in 2023-24 [4]. Removing deterrence could make this worse.
• Federal and legal gap: Under Art. 246A, both Parliament and the States make GST laws [4]. The CGST and all SGST Acts must be amended in step, or rules will be uneven.
• Trust is not tiered: There is no test of who has earned trust. A new firm is treated like a long-compliant one.

Overall, trust-based GST can raise voluntary compliance without hurting revenue, because coercion added little to collections. Keeping a narrow power of custody for fake invoicing, following the 2022 carve-out [2], would protect against fraud. So would CBIC guidelines on voluntary payment, which the Court asked for [4], and yearly publication of enforcement data. This would turn the Prime Minister's "citizen-friendly" GST [1] into justified trust that respects the rule of law.