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Modi, Prime Minister of India, pledges reduction in Goods and Services Tax by Diwali during his Independence Day speech.

Modi announces changes as India streamlines Goods and Services Tax (GST), with a committee of ministers working on a proposal to combine tax brackets and lower rates for certain goods

In his Independence Day address, Indian Prime Minister Modi pledges to reduce the Goods and...
In his Independence Day address, Indian Prime Minister Modi pledges to reduce the Goods and Services Tax by the festival of Diwali.

Proposed GST Reforms for Diwali 2025

Modi, Prime Minister of India, pledges reduction in Goods and Services Tax by Diwali during his Independence Day speech.

Prime Minister Narendra Modi announced significant changes to India's Goods and Services Tax (GST) system, aiming to simplify the tax structure and boost economic growth. The reforms are set to take effect by Diwali 2025.

Two-Slab System

The current four-slab GST structure (5%, 12%, 18%, and 28%) will be replaced with a two-slab system. Essential goods will be taxed at 5%, while the standard rate will be set at 18% [1][3].

Special Rates

A special rate of around 40% will be applied to select items such as cigarettes and luxury goods [3][5].

Exemptions

Health and life insurance premiums might be exempted entirely [3].

Impact on Consumers

The reforms aim to reduce retail prices, easing inflation and boosting spending power [3][4].

Benefit to MSMEs

The reforms are expected to reduce the tax burden on Micro, Small, and Medium Enterprises (MSMEs) [1].

Economic Effects

These changes are anticipated to increase consumption, improve compliance, and support economic growth, although there might be short-term revenue losses [3][4].

The proposed GST reforms could affect various sectors such as packaged food, beverages, apparel, and hotel accommodation, as approximately 20% of items fall under the 12% GST slab [2]. If most of these items are moved to the 5% slab and some to the 18% slab, it could lead to a revenue loss of around 500 billion rupees [1].

These reforms are designed to simplify India's tax structure, address inverted duty structures, and support economic growth by promoting domestic consumption [4][5]. The brokerage Citi made this estimation [1].

[1] - The Indian Express: "GST Council to consider merging tax slabs, lowering rates on some products" [2] - The Hindu: "GST Council to consider merging tax slabs, lowering rates on some products" [3] - Business Standard: "GST reforms: Key announcements by Narendra Modi on GST rates" [4] - Livemint: "GST reforms: What Narendra Modi said about GST rates, tax slabs, and exemptions" [5] - CNBC-TV18: "What Narendra Modi said about GST reforms in his Independence Day speech"

  1. The proposed GST reforms, which aim to simplify the tax structure and promote economic growth, could potentially impact various sectors such as food, beverages, apparel, and hospitality.
  2. On the other hand, the reforms could lead to a revenue loss of approximately 500 billion rupees due to the possible lowering of taxes on certain items.
  3. These reforms are expected to reduce the tax burden on Micro, Small, and Medium Enterprises (MSMEs), which could contribute to the growth of the business sector.
  4. The impact of these GST reforms on consumer spending power could extend to other areas, such as the investment in entertainment, finance, politics, and general news.

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