Eight Years of GST: PwC Recommends Petroleum Products Inclusion, Fewer Slabs for Simpler Tax System

NEW DELHI:
As India marks eight years of the Goods and Services Tax (GST) regime, consulting firm PwC India has called for a major overhaul of the system, recommending that petroleum products be brought under GST and the number of tax slabs be reduced from four to three.

GST was introduced on July 1, 2017, with the promise of simplifying India's fragmented indirect tax system by subsuming 17 local taxes and 13 cesses. Over the years, GST has delivered on revenue growth, with average monthly collections climbing from ₹90,000 crore in 2017-18 to ₹1.84 lakh crore in 2024-25. In April 2025 alone, collections touched a record ₹2.37 lakh crore.

Despite these gains, PwC’s latest report says India’s GST now stands at a “critical juncture” where reforms are essential to make it globally competitive, investor-friendly, and better aligned with the realities of international trade.

PwC Report Highlights

PwC India, in its report released on Monday (June 30, 2025), has recommended the following key reforms:

• Reduce Tax Slabs: Move from the current four-tier structure (5%, 12%, 18%, 28%) to a three-tier system to reduce disputes and improve tax certainty.

• Include Petroleum Products: Start with Aviation Turbine Fuel (ATF) and eventually bring in petrol, diesel, and natural gas to remove the cascading effect of taxes.

• Broaden Tax Base: By including excluded sectors and reducing exemptions, GST can become more equitable and less distortionary.

The Case for Fewer Slabs

GST’s four-tier structure is often criticised for being too complex, with different rates on similar products creating confusion and litigation.

“A transition from 4-tier to a 3-tier rate structure would reduce interpretational disputes, improve tax certainty and simplify compliance,” the PwC report states.

Reducing the slabs would also help businesses better plan cash flow and pricing, making the system more predictable and investor-friendly.

The Petroleum Products Challenge

Petroleum products like petrol, diesel, natural gas, and ATF currently remain outside the GST framework, instead attracting central excise duties and state VAT.

PwC argues this leads to a cascading effect (tax on tax), hurting industries like aviation and logistics, and contributing to credit accumulation issues in sectors with an inverted duty structure.

Including these products under GST would allow companies to claim input tax credit, easing cash flow pressures.

States' Concerns

One of the biggest roadblocks to including petroleum products in GST is state government revenue. States fear a significant shortfall, as these products are among their highest sources of tax income.

Under the Constitution, petroleum products can be brought under GST only with a specific recommendation of the GST Council, which comprises Finance Ministers from the Centre and States.

“A policy change that includes these items under GST, along with a system to protect state revenues, would simplify the tax structure, ease cash flow issues for businesses, and support the original goals of GST,” PwC argues.

Inverted Duty Structure Woes

PwC also called for comprehensive review of GST rates to address the inverted duty structure problem, where the GST rate on inputs is higher than on final products.

This problem is particularly severe in sectors such as:

• Electric Vehicles (EVs)

• Aviation

• E-commerce

These industries often accumulate unutilised input tax credits, hurting their cash flow and competitiveness.

Recent GST Council Stances

The idea of bringing ATF under GST was discussed in the GST Council meeting held in December 2024, but was rejected by states citing revenue concerns.

The PwC report acknowledges this challenge but suggests a phased approach, beginning with ATF as a test case to build consensus.

GST Collections: A Growth Story

Despite these structural challenges, GST has emerged as a critical revenue source for both the Centre and States.

• Average monthly collections in 2017-18: ₹90,000 crore

• Average monthly collections in 2024-25: ₹1.84 lakh crore

• Record collection in April 2025: ₹2.37 lakh crore

This growth reflects improved compliance, economic expansion, and the success of e-invoicing and technology-driven enforcement.

Calls for a Modern, Investor-Friendly GST

PwC’s report positions these recommended reforms as essential for India’s economic ambitions, especially in sectors such as manufacturing and global capability centres (GCCs).

“GST in India now stands at a critical juncture where aligning with global trade dynamics is essential,” the report says.

Simpler slabs, a broader base, and inclusion of petroleum products would make GST more agile, investor-friendly, and globally competitive.

Conclusion: A Turning Point?

Eight years in, GST is widely regarded as one of India’s biggest tax reforms, credited with unifying the country’s internal market and improving compliance.

But as the PwC report highlights, it is also a system in need of evolution to address new challenges:

• Complicated rate structure

• Exclusion of key products like petroleum

• Cash flow issues from inverted duty structures

With average monthly collections doubling over eight years, policymakers now face the question: Will they seize this moment to make GST simpler, fairer, and truly “One Nation, One Tax” in spirit?

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