Newsletter
The Centre is working on a major GST reform that could change how India consumes and pays taxes.
The proposal: the government plans to collapse the current four-rate structure into two principal rates, 5% for essentials and daily-use goods & 18% for most other items. The 28% slab will be scrapped and a new 40% slab will apply only to sin and luxury goods such as alcohol, tobacco and gambling.
What could get cheaper: household items such as stationery, notebooks, namkeens, packaged food, butter, ghee, apparel, footwear, bicycles, eyewear and even toothpowder may move from 12 to 5%.
Consumer durables and automobiles are also expected to benefit, with TVs, refrigerators, air conditioners and cement moving from 28% to 18%. Two-wheelers under 350cc and small cars under 1200cc engines may drop from around 30% to 18%, while hybrid passenger vehicles may also move from 28% to 18%.
The catch: insurance may not get cheaper. Experts warn that if insurers lose the benefit of claiming back GST on services such as IT and administration, these added costs will likely be passed on to policyholders, reducing the benefit of lower rates.
The bottom line: auto stocks from Maruti Suzuki to Ashok Leyland touched new highs on Monday on expectations of GST revisions. A lower GST regime is likely to boost demand and sales, making cars and several goods more affordable.
