MUMBAI: The aggressive tax enforcement targeting small businesses could undermine the gains of tax formalisation under the GST, which has crossed eight years of implementation, and could push them back into the cash economy that online payments especially the UPI have helped reduce to a large extent, SBI Research has warned in a report.
"A recent case from Karnataka illustrates this tension of aggressive tax enforcement under the GST regime, 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 said.
Urging moderation, the report said, "While the intent to capture a more accurate picture of economic activity and reduce tax evasion is commendable, such enforcement must be balanced with sensitivity. The risk is that overly aggressive scrutiny could drive small businesses back into the informal cash-based economy undermining the very purpose of formalisation."
The report, penned by the bank’s chief economic advisor Soumaykanti Ghosh, further argues that inclusivity must remain the central tenet of GST's future.
"GST has laid the foundation for greater accountability and revenue generation, but its long-term success will depend on ensuring that it empowers all stakeholders, especially small traders, instead of penalising them," Ghosh warned.
It may be noted that on July 1, 2025, the goods and services tax (GST) completed eight years. Introduced in 2017 as a major step towards economic integration, GST has replaced a maze of indirect taxes with a unified system but with multiple rates. The current GST structure consists of four main rate slabs: 5, 12, 18 and 28% and then three special rates: 3% on gold, silver, diamond & jewellery, 1.5% on cut and polished diamonds, and 0.25% on rough diamonds. It has made tax compliance easier, reduced costs for businesses, and allowed goods to move freely across states.
On the impact of GST, the report notes that one-fifth of all the registered GST taxpayers have at least one female member and 14% of the total registered taxpayers have all female members.
There are over 1.52 crore active GST registrations; the top five states account for 50% of total active GST taxpayers.
In just five years (FY25 over FY21), gross GST collection doubled with average monthly collection crossing Rs 2 trillion. The top five states account for 41% of gross revenue and six states collect more than Rs 1 trillion in GST.
States having GST collection of over Rs 1 trillion have IGST share of more than 30% in their total domestic collection emphasizing the contribution of larger states in pushing GST collection across other states.