"Digital-first business environment" is not just another buzzword. It is characterized by the proliferation of online business registration and electronic invoicing, a paradigm shift in legal compliances and accessibility in business, and a transformation in how governments collect and manage taxes.
The current row of digitalization encapsulates the genuine desire to redefine standards of business operations wherein digital technologies are leveraged to drive innovation and expansion of revenue opportunities. At the same time, implementation of regulatory standards is enhanced, especially digitization of tax compliances, which is foundational to the objective of GST. Such fundamental changes come with their unique set of challenges, as well as opportunities that demand innovations beyond simple computerization.
Data-driven insights vs. the cost of compliance
The GST tax system requires businesses to carry out a thorough analysis of internal processes. This includes a robust financial reporting and an extensive digitization of record keeping, which brings transparency and auditability to the business right from the beginning, paving the way for creating sustainable systems of operation that are foundational to growth. Moreover, digital tools have built-in validation systems that ensure that the possibility of data entry mistakes is reduced while increasing efficiency and ensuring compliance.
While this posits several harmonious opportunities for businesses, it is undeniable that it puts an administrative burden on the organization. As a result, the magnitude and frequency of compliances needed have rise the cost of compliance exorbitantly. The current system thus has several opportunities for simplification of business operations and tax obligations through simplification of the GST rate structure.
Challenges to keeping B2C and B2B E-way Bills
Currently, B2B transactions necessitate e-invoicing and e-way bills. As for B2C, only e-way bills are compulsory, i.e., claiming ITC through B2C would require additional steps. The taxpayer thus will need to keep B2B and B2C invoices in separate categories, making taxation laborious for a large number of invoices. The lack of automations adds to the tedious nature of the task.
Contributions to make in India: Making entrepreneurship accessible
By February 2025, India had over 1.6 lakh registered startups, a tremendous increase from 2016 when only 50 startups were recognized. Make in India undoubtedly contributed to this accelerated growth of India’s startup ecosystem. However, GST is one of the most instrumental reforms in supporting a thriving environment for startups.
Prior to 2017, the VAT system burdened small businesses with heavy taxes, which was detrimental for business growth without intensive capital investment. However, today, the unified tax system of GST alongside the introduction of ITC, startups get relief from taxes, while buying office supplies is a boon for bootstrap startups. Moreover, registering a business and getting a GSTIN number is simple and fast.
Also Read: Tax Implications of Mergers and Acquisitions in India
Simplified registration—a double-edged sword
The present GST system uses a unique 15-digit code to identify GST-registered businesses (GSTIN), using which entrepreneurs can file for input tax credits. Indubitably, the code is imperative for the entrepreneurial journey in the digital age, and the government attempted to simplify the verification process in the hopes of making entrepreneurship accessible. The digitization offers a more stringent compliance system, wherein real-time e-invoicing becomes mandatory. Consequently, the real-time reporting to tax authorities reduces the window for manipulating sales records since goods cannot move without documentation. The E-way Bill system is empowered by artificial intelligence tools to detect anomalies and flag them as suspicious, prompting authorities to intervene.
However, challenges arise with an influx of small-value invoices, which can be faked and are way below the fraud detection threshold of AI. Additionally, fraudulent registrations can be made with fabricated or stolen identities, highlighting the systemic failures in KYC processes. Validation processes should demand robust checks, such as compulsory video verification, which is currently optional for registration. With the fake registration, the perpetrators create fake e-invoices to claim Input Tax Credit (ITC), which reduces their tax liabilities, and claim refunds without real transactions.
Simply put, on one hand, the reform potentially led to the registration of over 74 thousand companies during the first eight months of 2017, while on the other, it made GST frauds through identity theft easy. In such a situation, the emerging blockchain technology offers potential for immutable, transparent transaction ledgers.
Future-Proofing Indian Business markets
The current regime defers the growth of the textile sector through policies that levy higher taxes on handmade textiles, which not only raise the cost of production but also stunt the growth of artisans. Additionally, with petroleum still following the VAT system, industries like telecommunications, which heavily depend on the petroleum industry as an energy source, suffer from a cascading effect. Moreover, several areas demand rationalization of taxation in addition to automation and stringent verification methods to detect and eliminate fraudulent activities and also help in tax administration.
Moreover, it's critical to note that GST is a work in progress, with multiple challenges and growth opportunities, especially with advent of digitization. As the government is continuously striving to streamline the processes and address system loopholes, numerous policy reforms are required through collective efforts from both the central and state bodies to make tax rates lower and consolidated.
About the Author
Ankit Chadha is a seasoned consulting leader with nearly two decades of experience spanning IT-ITES, hospitality, automotive, manufacturing, e-commerce, retail, and BFSI. Specializing in governance, risk management, and strategic advisory, he has delivered transformative solutions across complex business landscapes. Beginning as an intern at Ernst & Young, Ankit co-founded a boutique investment bank before leading TRC Consulting for over 15 years. Under his stewardship, TRC has evolved into a 300-member global consulting brand across 10 geographies. A B.Com (Hons) graduate, PGDMA holder, and half-qualified CA with executive programs from IIM Ahmedabad and Kozhikode, he combines financial insight with strategic vision to drive sustainable growth.
