As the Goods and Services Tax (GST) marks eight years since its rollout, a report from SBI Research is urging policymakers to recalibrate the tax regime’s implementation with greater empathy and fairness—especially toward India’s small traders. While GST has undeniably transformed India’s fiscal landscape, ushering in greater transparency, formalisation, and revenue buoyancy, its future success hinges on protecting, not penalising, the very businesses it was designed to empower.
A recent spate of tax notices in Bengaluru, based on digital footprints such as UPI transactions, has exposed growing tensions between data-driven enforcement and ground realities. Several small shopkeepers and micro-enterprises have received disproportionately large GST demands, prompting fears that overzealous scrutiny could push them back into the informal cash economy.
“As we celebrate its achievements, it is equally important to reflect on the emerging challenges. A recent case from Karnataka illustrates this tension, where numerous small traders and shopkeepers in Bengaluru have received disproportionately high tax notices primarily based on digital footprints such as UPI transactions,” the report says.
“GST has laid the foundation for greater accountability and revenue generation,” adds the report. “But its long-term success will depend on ensuring that it empowers all stakeholders—especially small traders—instead of penalising them. Inclusivity, transparency, and fair implementation will be key to celebrating GST in both letter and spirit.”
Led by the SBI Research team under Soumya Kanti Ghosh, Group Chief Economic Advisor at the State Bank of India and Member of the 16th Finance Commission, the report offers a nuanced assessment of GST’s achievements and emerging challenges.
The Karnataka flashpoint: A cautionary tale
The report flags the Karnataka case as emblematic of the risks of aggressive enforcement in the digital era, where tax authorities are increasingly relying on transactional data from payment platforms like UPI to infer business turnover.
“While the intent to reduce tax evasion and broaden the base is commendable, enforcement must be balanced with ground sensitivity. Excessive scrutiny based on digital trails—without context—could erode the trust and compliance culture built over the last eight years,” it cautions.
SBI Research recommends that data analytics should guide tax policy, not dictate it. It urges tax administrators to adopt segmentation-based thresholds and avoid blanket scrutiny for small enterprises whose digital transactions often blur the line between personal and business use.
Despite the concerns, the report celebrates GST as a major structural reform that has delivered on many of its promises. The average monthly GST revenues have crossed ₹2 lakh crore in FY25, compared to ₹1 lakh crore in FY21 and GST collections have grown at a CAGR of 14.4% since its launch in 2017.
A standout feature of the SBI analysis is the growing participation of women in the GST ecosystem. The data reveals that 1 in every 5 GST taxpayer entities have at least one woman partner and 14% of total GST registrations are women-led entities. Furthermore, women comprise 48% of LLPs and 47% of private limited companies registered under GST.
The report highlights this as a sign of economic democratisation, noting that simplified compliance tools and digital platforms have enabled more women, especially in smaller towns, to enter the formal business sector.
In terms of State-wise performance, the report identifies Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Haryana as the top five GST-contributing states, together accounting for 41% of total collections.
However, the most rapid expansion in registrations is seen in Uttar Pradesh and West Bengal, signalling increased formalisation in consumption-heavy, populous states.
GST and inflation moderation
SBI Research also links GST to broader macroeconomic benefits, such as inflation convergence. Analysing state-wise inflation and refund data (used as a proxy for Input Tax Credit chain efficiency), it found that states with more seamless credit flows saw lower inflation differentials.
“GST is now contributing to price convergence across states, playing a stabilising role in inflation trends,” the report notes, especially from FY24 onwards, aided by mandatory e-invoicing and digital recordkeeping.
A roadmap for the future
Looking ahead, the report advocates a more empathetic, calibrated approach to enforcement. The research recommends avoiding one-size-fits-all compliance checks, particularly for small businesses and formulating clear, segmented benchmarks for audit triggers based on turnover and sector
In addition, capacity-building for tax officials to interpret digital data in the right context and establishing grievance redressal mechanisms tailored to the needs of small traders and micro-entrepreneurs, according to the report.
“GST is not merely a revenue tool; it is a compact between the state and its citizens,” says the SBI team. “Its success must be measured not just in rupees collected, but in the trust it fosters.”
Road ahead
Eight years on, GST stands as a transformative pillar of India’s economic reform story. But as the SBI Research report underscores, its celebration must go hand in hand with course correction. In the digital age, where data is abundant but context often missing, the future of GST lies in a system that is not only technologically smart, but also socially sensitive.
