The Goods and Services Tax (GST) was introduced in 2017 to unify India’s complex tax structure, and the government has continued to refine its enforcement through technology and regulation. A major planned reform is the GST Compliance Rating system under Section 149 of the CGST Act, 2017, which would assign every registered taxpayer a score based on adherence to GST rules (filing returns on time, accurate invoicing, timely tax payments, etc.). In theory, this rating would encourage prompt compliance and make the tax ecosystem more transparent for all stakeholders. In practice, however, the system is still awaiting formal notification of rules. While the rating framework remains under development, the government has implemented a wave of related reforms in 2024–2025 to strengthen GST compliance overall. These include expanding e-invoicing, introducing invoice management tools, enhancing authentication (biometric and multi-factor), and other measures (e.g. immunity schemes) aimed at transparency and taxpayer facilitation. This paper examines the purpose and benefits of the compliance rating, highlights its challenges, and embeds the latest initiatives into an overall vision – offering policy insights on how India can leverage digital governance and taxpayer engagement to make GST enforcement both rigorous and fair.
Benefits of a GST Compliance Rating
The compliance rating system is designed to foster a culture of compliance among taxpayers by rewarding timely and correct behaviour. Standardized ratings would benefit all key parties in the supply chain:
- Buyers could gauge a supplier’s trustworthiness. A high compliance score signals that a vendor files returns promptly and issues valid invoices, reducing the risk of disruptions in the Input Tax Credit (ITC) chain. In a time when e-invoicing and portal data automate ITC matching, a robust rating would help buyers avoid suppliers who delay filings, thereby shielding downstream businesses from losing credit.
- Suppliers would build market credibility. A good rating publicly signals that a company manages its tax obligations well, which can help attract customers and credit. In a competitive market, compliant firms would stand out as reliable partners. Greater transparency also means that firms are incentivized to issue accurate invoices. Indeed, India’s recent launch of the Invoice Management System (IMS) allows recipients to reconcile and dispute supplier invoices online. This both smooths ITC reconciliation and underlines to taxpayers that invoice quality matters for their reputation.
- Creditors and investors would have a quantitative gauge of credit risk. Banks and financiers could use GST scores as part of credit assessments. Just as credit ratings influence lending, a compliance score could inform loan decisions, reducing default risk when the score reflects a record of compliance.
By publicly promoting compliance behaviour, the rating system aims to increase overall transparency. It complements other digital initiatives that have already improved data accuracy. For example, mandatory e–invoicing (for large businesses) and real-time return filing (new return systems scheduled for rollout in 2024–25) ensure that transaction records are posted live on the GST portal. These technologies significantly improve transaction transparency. In fact, one recent analysis noted that the implementation of e-invoicing and digital documentation “has improved the accuracy and transparency of transactions, making it easier for auditors to verify data”. A compliance rating system would leverage this rich data, binding together invoices, GSTR filings, and payments into an index that rewards conformity.
When fully operational, a public rating can incentivize good behaviour. One commentary observes that a GST compliance rating could “incentivize taxpayers to maintain good compliance records, as higher ratings can lead to benefits” (such as reduced scrutiny or faster refunds). In my view, this creates a positive feedback loop: knowing that scores are public and tied to reputational benefits, businesses will have stronger reasons to use the new digital tools (e-invoice, GSTR, IMS, etc.) effectively. In effect, technology-driven transparency becomes self-reinforcing: as the GST Network (GSTN) pushes out portals and advisories, businesses engaged with the system will automatically generate the data that powers their compliance score. This synergy between digital governance and the rating framework should ultimately enhance trust in the tax system.
Ongoing Reforms in GST Compliance
Even before the rating system is launched, the government’s latest measures have greatly tightened compliance and leveraged technology:
- Invoice Management System (IMS, Oct 2024): Under this, suppliers upload invoices to the GST portal and recipients can accept, reject, or keep them pending. The idea is to automate Input Tax Credit matching and reduce mismatches. Early reports noted some glitches (e.g. wrong ITC auto-population can occur if a recipient takes incorrect action), but corrective options exist. Experts say IMS “has transformed ITC matching by reducing manual errors and enhancing compliance accuracy”. Practically, IMS means invoices are verified in real time, which underpins any rating based on timely invoicing.
- E-Invoicing Expansion: As of April 2025, all businesses with turnover above ₹10 crore must upload their invoices within 30 days of the invoice date. (Previously this threshold was higher: it started at ₹50 crore and was being gradually lowered.) The stricter e-invoicing rule ensures invoices are reported promptly into the GST system – a fundamental compliance parameter. This reform is explicitly intended to boost transparency and collections. From a policy standpoint, a compliance rating regime will rely on these digital records; the government’s push to capture invoices efficiently signals that e-invoicing data could feed directly into a taxpayer’s score.
- Biometric Authentication (July 2024): As decided by the GST Council, high-risk taxpayers must now complete Aadhaar-based biometric verification when registering for GST. This measure (introduced in July 2024) aims to curb fake registrations by tying entities to real identities. Stronger verification may bolster trust in the system’s data, indirectly supporting a fair rating system. If each GSTIN is more rigorously authenticated, then compliance scores are based on verifiable entities, reducing identity fraud.
- Multi-Factor Authentication (MFA): Security enhancements continue. From January 2025 onward, MFA has been phased in for GST portal access. Taxpayers with turnover more than ₹20 crore were first required to register two-factor OTP logins, followed by taxpayer with turnover more than ₹5 crore by Feb 2025, and all taxpayers by April 1, 2025. This ensures that only legitimate users can file e-way bills and e-invoices. While technically a security measure, MFA also reflects a broader trend of digital governance. By safeguarding the data input, it increases confidence that compliance scores reflect real actions, not system abuse.
- Amnesty and Dispute Resolution: In late 2024, the government introduced a GST amnesty scheme (under Section 128A) to waive interest and penalties on certain legacy disputes if taxpayers settle by March 31, 2025. This is part of a policy to reduce litigation and ease compliance burdens. From a compliance-rating perspective, giving businesses a “clean slate” encourages them to focus on current filings rather than past issues. Similarly, the partial operationalisation of the GST Appellate Tribunal (GSTAT) in 2024 provides taxpayers a dedicated forum for appeals. A responsive dispute system builds trust; knowing that rating disputes or errors can be corrected through a tribunal may make businesses more willing to participate in a public-rating scheme.
- E-way Bill Reforms: Important too are changes to e-Way Bills (for transporting goods). Starting Jan 1, 2025, an e-Way Bill can only be generated for documents dated within 180 days of travel, and any extension is capped at 360 days. This prevents misuse of old invoices and keeps records fresh. Importantly, failure to produce valid e-Way Bills carries penalties, so these rules indirectly reinforce overall GST discipline. A well-functioning rating system will likely integrate compliance with such requirements (since failure to generate an e-Way Bill is a serious violation).
These reforms illustrate the government’s focus on technology, transparency and trust (the so-called “three T’s”). Each digital change expands the data available for monitoring compliance. The author’s view is that these steps are complementary: they create a foundation of clean, timely data that a compliance-rating system can leverage. For example, with e-invoices and IMS in place, the government can more accurately track if a taxpayer filed all of their invoices and returns on schedule. This means that when ratings are eventually implemented, they will be backed by verifiable digital footprints, making the scores more meaningful and credible to businesses.
Challenges and Considerations
Despite its promise, the compliance rating system faces several hurdles – many of which have been highlighted in recent policy analysis. It is important to address these concerns, especially in light of the new environment:
- Discretionary vs. Mandatory: As drafted, Section 149(1) says a rating “may” be assigned, making it technically optional. This discretionary language undermines the system’s strength: if compliance scores are not mandatory, some taxpayers might simply opt out and ignore them. Many experts have urged replacing “may” with “shall” to make ratings universal. In the current context, mandatory ratings would signal that the government is serious about transparency. From a policy perspective, making the system obligatory (as soon as the technology is ready) will be crucial – otherwise a voluntary scheme will have little teeth.
- Unclear Scoring Parameters: Section 149(2) notes that scores will be based on parameters “as may be prescribed,” but to date no official criteria have been notified. Without clarity on what factors matter most (punctual returns, net tax liability, prompt ITC reconciliation, etc.), businesses are left guessing. This uncertainty is compounded by the evolving GST regime: for example, e-invoice compliance is new and crucial, but how it will affect the rating is unclear. In my view, policymakers should tie the rating parameters closely to these recent reforms. If e-invoicing is mandatory from 2025, the rating might explicitly reward 100% e-invoice reporting. Similarly, integrating metrics from the IMS (such as the percentage of accepted invoices) could be considered. Leaving parameters undefined would waste the opportunity to align the rating with the government’s transparency goals.
- Authority and Administration: There is confusion about who will own the ratings system. Some discussions suggest the GSTN (the IT body that runs the portal) will manage it, but the law does not clearly assign responsibility. A well-structured framework needs a clear division: perhaps the GST Council should set policy and scoring rules, while the GSTN handles computation and publication. In practice, this means giving statutory backing to the GSTN’s technical role, under the Council’s guidance. Any ambiguity here could lead to implementation delays or inconsistent ratings across states. The government will need to codify these roles before going live, especially since recent digital initiatives already involve multiple stakeholders (NIC, GSTN, state systems, etc.).
- Privacy and Data Security: Section 149(3) requires that ratings be placed in the public domain. On one hand, this transparency is a core benefit – anyone (buyers, banks, markets) can see a company’s score. On the other hand, businesses fear “commercial privacy” risks. If a rating reflects a partial dataset or temporary error, public display could damage reputations. Cybersecurity is another concern: the GSTN portal has faced hacking attempts in the past, and more public data could attract bad actors. Recent reforms like MFA and IMS improve security of entry points, but the portal must be equally robust in protecting published data. From a policy standpoint, I would recommend a phased disclosure: for example, share ratings within the GSTN login first (with the taxpayer) and allow time to correct errors, before broad public release. Also, regulators could define exactly which data points show up on the public portal to avoid leaking sensitive business information beyond the score itself.
- Transition Issues: Many businesses still struggle with the digital tools. The government has launched helpdesks, advisories, and helpline calls to educate taxpayers on portal updates (as noted in PIB year-end reports). Active taxpayer engagement is crucial. I suggest that alongside announcing these rating reforms, authorities should host webinars or workshops on “how to improve your GST compliance score” – similar to earlier initiatives like GST Suvidha campaigns. The training efforts mentioned in ICMAI’s January 2024 bulletin show this is already happening in general GST education. Extending it to the rating system will help businesses see it as a tool for self-improvement rather than a punishment.
In summary, many of these challenges are common to any compliance index. They are not insurmountable, especially given India’s tech-driven approach. The recent drive towards real-time data collection (e-invoices, MIS, MFA, biometric KYC, etc.) can actually mitigate some concerns: if the underlying system is accurate and secure, the rating derived from it will be more trusted.
Global Perspectives and Best Practices
India can learn from other tax authorities that have implemented risk-rating or compliance-score systems. Such models show how to balance transparency with privacy:
- Australia’s “Nearest Neighbour” profiling: The Australian Tax Office creates customized risk profiles for taxpayers, allowing companies to see how they stack up against peers. This offers actionable insights without exposing sensitive details. A similar approach in India could help large filers gauge their compliance relative to industry norms. For example, if the GSTN portal showed that a firm’s rating is high (green) but certain industries tend to score even higher, it gives a road map for improvement without public shaming.
- Canada’s risk assessment system: Canada Revenue Agency focuses audits on large firms with frequent non-compliance. In India, the GSTN already flags suspicious filers (e.g. auto-suspends registrations for non-filing). Under a compliance rating regime, India could use its scores to target enforcement resources: low-scoring taxpayers could be audited more intensively, while high scorers get lighter touch. This targeted scrutiny is akin to what New Zealand does with sectors. Such a framework was suggested in Indian analysis as a way to relieve “overhead pressure on tax authorities” by concentrating on problematic entities.
- Data Privacy Protections: Other countries also grapple with privacy. Germany’s “financial indicator system” for VAT uses internal credit scores of businesses, but details are confidential. India will need safeguards too. Perhaps scoring principles (like “on-time filing” vs “late filing”) could be summarized publicly instead of raw scores, to protect strategy while still being transparent. This kind of creative solution is the sort of balance regulators worldwide are exploring.
Overall, global models confirm that taxpayer engagement is key. Systems like Australia’s combine automated data with taxpayer feedback. India’s new portals often allow queries or revision windows (e.g. IMS allows invoice correction before ITC claim). The government should similarly allow taxpayers to view and dispute their GST ratings before final publication. Encouraging this dialogue will build trust – a goal strongly echoed by tax analysts focusing on technology, transparency and trust as the pillars of modern tax regimes.
Enhancing the Compliance Rating Framework
In light of the above, the following policy measures would help India realize the potential of the GST Compliance Rating system:
- Make Ratings Mandatory: Replace “may” with “shall” in the law. Uniform application is critical for credibility. Once the technical platform is ready (which, given current reforms, should not be long), all registered taxpayers should receive a rating. This would send a clear signal that compliance is not optional.
- Define Clear Parameters: The GST Council should promptly notify the scoring criteria. Ideally, these parameters would align with recent reforms: e-invoice filing, GSTR-3B timeliness, IMS responsiveness, tax payment punctuality, etc. For example, the portal could track the percentage of GSTR-1s filed on time, the proportion of ITC claims accepted without dispute, and similar metrics. Having these rules in advance will help businesses plan. As one analysis put it, clear guidelines “better enable businesses to know upfront the compliance measures required for their continued top rating”.
- Assign Roles to GST Council and GSTN: Explicitly authorize the GSTN to calculate and publish ratings under the oversight of the GST Council. This avoids confusion: policy stays with the Council, operations with GSTN. A joint Committee (finance officers + IT experts) might oversee the rollout. This division of labour will ensure smooth technical integration with existing portals.
- Guard Privacy with Guidelines: The government should specify exactly what information accompanies the rating in public view. Possibly only the score and a tier label (e.g. Gold, Silver, Bronze) are shown, without business details. Taxpayers should have a right to see their draft score and correct any data errors before public posting. A small task force for data security could be formed (as some experts suggest) to advise on cyber-safety and privacy norms.
- Engage Taxpayers: Finally, authorities should treat the rating as a tool for partnership, not just enforcement. Workshops, helpline features, and FAQs on “how your rating is computed” will encourage voluntary improvement. For instance, new GST helpline centres or GST Suvidha initiatives could offer a compliance score feedback feature (similar to credit bureau modelling). Such positive engagement will improve overall compliance: if businesses see that good behaviour is recognized and bad behaviour flagged early, they will buy into the system as legitimate and fair.
Conclusion
Reforming the GST compliance rating system is one piece of India’s broader tax modernization agenda. The government’s recent regulatory updates – from sophisticated e-invoicing rules to enhanced authentication – have significantly raised the bar for digital compliance. These initiatives strengthen the raw material (data accuracy and security) on which a compliance rating will be built. If implemented thoughtfully, the rating system can leverage this data to promote transparency and trust across the economy.
In sum, India stands at a juncture where technology and policy can jointly transform GST enforcement. A well-designed rating framework – mandatory, clear, and underpinned by modern digital governance – could revolutionize taxpayer compliance. Such transparency would not only deter evasion but also reward diligence. Ultimately, by coupling enforcement with engagement, India can make GST not only more efficient, but also fairer and more accountable for all stakeholders.
Author Bio
The law should make provisions for rating the Officers of the Department.
This will greatly help.