The 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, is underway, with high expectations from traders and businesses. The meeting aims to discuss a shift to a simplified two-slab system, potentially reducing tax rates on key goods and services. This move is expected to boost domestic consumption, particularly among middle-class households, and support private investment.
Potential Rate Changes
According to proposals under discussion, items currently taxed at 28% may be reduced to 18%, while those in the 18% bracket could fall to 12% or even 5%. Goods and services will be broadly classified as ‘merit’ or ‘standard’, with the lower rate applying to the latter. A special “sin tax” of 40% will continue for a limited list of products, including tobacco and luxury automobiles.
Sectors That Could Gain
– Automobiles: Small cars under 1200cc engines, motorcycles under 350cc, and auto parts may see GST cut from 28% to 18%, making vehicles more affordable for the majority of buyers.
– Hospitality and Entertainment: Hotel stays and movie tickets could drop from 12% to 5%, benefiting the tourism industry.
– Healthcare: Cancer drugs may be exempted from GST, with other medicines and essential medical supplies moving from 12% to 5%. Health and life insurance for individuals is also likely to be exempt.
– Daily-Use Goods: Items like paneer, pizza bread, khakra, fruit juices, coconut water, butter, cheese, pasta, and ice cream could become cheaper with rates dropping from 12% to 5% or being exempted entirely.
– Agriculture and Fertilisers: Inputs such as sulphuric acid, nitric acid, and ammonia may be cut from 18% to 5%, easing costs for the agriculture sector.
Sectors That Could Be Affected
– Luxury and Sin Goods: Tobacco, pan masala, and luxury automobiles may face a new 40% sin tax, increasing their prices.
– Electric Vehicles (EVs): Four-wheeled EVs priced between Rs 20-40 lakh could see GST hiked from 5% to 18%, and luxury EVs above Rs 40 lakh may fall under the 40% bracket.
– Coal and Certain Energy Products: Coal may move from 5% to 18% after cess removal, raising costs for power producers and potentially impacting electricity tariffs.
Economic Impact
Experts suggest that the changes could give a strong push to domestic consumption, particularly among middle-class households, while also supporting private investment. The government hopes the move will boost market activity despite an estimated revenue loss of Rs 50,000 crore. A recent SBI Research report suggested GST reforms, combined with recent income tax cuts, could lift consumption by Rs 5.31 lakh crore, equal to around 1.6% of GDP.
