Finance Minister Nirmala Sitharaman on Wednesday announced sweeping tax cuts on hundreds of consumer items ranging from soaps to small cars, in a bid to spur domestic demand amid economic headwinds from steep US tariffs.
The Goods and Services Tax (GST) council, which Sitharaman chairs and which includes ministers from all states, approved lower levies on everyday items and a simpler structure, she told a late-night press conference.
The GST has long faced criticism for its complexity and multiple categories. To address this, the council agreed to move to a two-rate system of 5 percent and 18 percent, replacing the current four-tier structure.
Sitharaman said the panel had cut taxes on products such as toothpaste and shampoo to 5 percent from 18 percent, while reducing levies on small cars, air conditioners and televisions to 18 percent from 28 percent. She added that GST would be removed entirely from individual life and health insurance policies.
Central and state governments are expected to lose around 4.80 lakh-crore rupees in revenue from the reductions, which will take effect from September 22.
Coupled with personal income tax cuts unveiled in February, the GST changes are expected to boost consumption in an economy that grew by a stronger-than-expected 7.8 percent in the June quarter.
“The consumption boost from GST rationalisation will more than offset any revenue impact,” said Soumya Kanti Ghosh, chief economist at State Bank of India. “The effect on the fiscal deficit will be negligible, if not positive.”
At the same time, the council approved a 40 percent tax on “super luxury” and “sin” goods, including cigarettes, high-end cars with engine capacity above 1,500 cubic centimetres, and carbonated beverages.
The move is expected to lift sales for fast-moving consumer goods makers such as Hindustan Unilever and Godrej Industries, as well as consumer electronics majors including Samsung, LG and Sony. Automakers such as Maruti, Toyota and Suzuki are also seen as major beneficiaries.
The tax overhaul followed Prime Minister Narendra Modi’s call for greater self-reliance, after he pledged last month to lower GST rates by October to counter US tariffs of up to 50 percent.
After Wednesday’s announcement, Modi said: “These wide-ranging reforms will improve the lives of our citizens and ensure ease of doing business for all, especially small traders and enterprises.”
