Recent reforms under GST 2.0 show that simplification and tax moderation can coexist with strong revenue growth, a report said on Wednesday, calling for freezing peak tax rates and expanding tax base through technology. The white paper from Think Change Forum said that recent GST reforms proved wrong the long-held belief that higher tax rates are necessary to boost collections as gross GST collections rose 4.5 per cent (on-year) to Rs 1.95 lakh crore in October 2025.
The report argued that the rise in tax collection validated the principle that in high‑informality economies compliance elasticity outweighs rate elasticity. The report, however, flagged that India’s tax‑to‑GDP ratio of around 17 per cent masks a narrow direct tax base and heavy reliance on regressive indirect levies.
“High taxes — whether direct or indirect — always encourage evasion and corruption. Lower taxes widen the base and improve compliance. GST collections are rising because the economy is formalising — but we must avoid creating a new 40 per cent peak rate that undermines compliance. Ideally, GST should be restricted to just 5 per cent and 18 per cent,” said Yogendra Kapoor, author and public speaker.
The forum called for prioritising freezing peak direct tax rates, expanding the direct tax base through technology, avoiding MRP‑based taxation and completing the GST credit chain in the upcoming Union Budget. As the compensation cess sunsets, the MRP-based taxation is prone to manipulation in a cash-heavy economy and the government should rely instead on clean, specific duties that are easier to enforce.
The Budget should outline a phased roadmap to bring petroleum, electricity and other excluded inputs under GST to restore tax neutrality and reduce cascading costs for industry, it added. It also listed other priorities including incentivising productive reinvestment and aggressively curtailing the parallel economy.
“The Budget must strengthen enforcement against smuggling, illicit trade and tax evasion so that non-compliance becomes costlier than compliance and honest taxpayers are no longer penalised,” the report noted.
