GST Overhaul Urged by Industry: Expand Tax Base, Cut Rates
By Aaerm Law Associates | June 4, 2025
India’s leading industry associations have called on the government to review and reform the Goods and Services Tax (GST) framework. Their aim is to expand the tax base by bringing petroleum products, electricity, and real estate under GST. They argue that these reforms will simplify the tax structure, lower GST rates, and increase compliance.
India’s Current GST Performance
GST collections in India have surged in recent months. In May 2025, collections hit ₹2.01 lakh crore, marking a 16.4% year-on-year growth. This increase was fueled by stronger import taxes, which reached a three-year high.
Industry voices believe this momentum can grow further. By including key sectors like petroleum, electricity, and real estate under GST, the system would become more efficient and fair. It would also offer the government space to reduce overall rates.
Top Industry Recommendations for GST Reform
1. Bring Petroleum Products Under GST
The industry suggests a phased inclusion of petroleum products. It recommends starting with aviation turbine fuel (ATF) and natural gas. These are easier to integrate because the central government has more control over them.
By including these items, the government can cut down cascading taxes and improve revenue stability.
2. Add Electricity to GST
Electricity is a core input for almost every sector. Including it in GST would help remove tax-on-tax issues. This would also reduce operational costs for businesses and simplify billing structures.
3. Reform Real Estate Taxation
The real estate sector is partially under GST. Activities like rentals and lease agreements fall within its scope. However, the industry points out limitations on input tax credit (ITC) for construction inputs.
They suggest removing these ITC restrictions in phases. Doing so would encourage better compliance and reduce tax inefficiencies.
Why This Reform Matters
Industry groups believe these changes would bring several benefits:
- Expand the Tax Base: Including petroleum, electricity, and real estate would pull more economic activity under GST. This would result in higher tax revenue.
- Reduce Cascading Taxes: Today’s structure often leads to double taxation. Streamlining the system would lower the tax burden for end consumers.
- Boost Compliance: A simpler system with fewer exemptions and better credit flow would encourage businesses to follow the rules more closely.
Roadblocks in the Path Ahead
Despite clear benefits, several obstacles remain:
- Petroleum Products: Attempts to bring ATF under GST have failed in the past. Even at the 55th GST Council meeting in Jaisalmer, the proposal was rejected. Both opposition and ruling party states resist this move due to potential revenue loss.
- Electricity: Many states worry about losing control over this revenue source. Their resistance has stalled past reform efforts.
- Real Estate: Initially, this sector enjoyed ITC benefits. Later, these were restricted. The industry now wants a fresh review, but states remain cautious.
The resistance mainly comes from fears over losing state-level revenue. Petroleum and electricity are major income sources for state governments. Replacing local taxes with GST would need strong compensation mechanisms.
Why Now?
India’s economy is growing, and GST revenues are on the rise. This is the right time to simplify the system and bring in structural reforms. Industry experts feel these updates will not only stabilize state finances in the long run but also reduce the tax burden for consumers and businesses.
The industry believes these changes are essential to keep pace with evolving economic needs. A broader tax base will make GST more effective and less dependent on rate increases.
Conclusion: Will the Government Act?
The proposal to revamp GST is bold. Including sectors like petroleum, electricity, and real estate could reshape India’s tax regime.
Yes, the challenges are real—especially with state governments concerned about revenue loss. But the potential benefits—simpler taxation, broader compliance, and lower rates—make this a reform worth pursuing.
All eyes are now on the upcoming GST Council meeting. Will the Centre act on these recommendations? That decision could shape India’s economic policy for years to come.
