GST announcement

In what is surely going to become a sentiment booster, India's Prime Minister Narendra Modi, during his Independence Day speech on 15th August, announced a plan to make taxes on goods and services simpler and lower for the first time since they were introduced in 2017. This is a big deal because it could help people buy more things, which is good for the economy, especially with new taxes from the US that might slow things down.

As one may be aware, the existing GST (Goods and Services Tax) framework applies different rates like 5%, 12%, 18%, and 28% on most items. And then there are things like cigarettes, on which extra taxes are levied.

The central government wants to change this to just two main tax rates: 5% and 18%. Below is a quick summary of what this will likely mean:

• ● Most things that were taxed at 12% will now be cheaper at 5%
• ● Many items that were at 28% will now be 18%
• ● Essential items like toothpaste, food, and medicines will mostly be taxed at 0% or 5%.
• ● More expensive items like TVs and washing machines will likely be at 18%.
• ● Some things, like tobacco, might even have a higher tax of 40%.

This simpler and lower tax system is expected to help people have more money to spend, which can boost sales for businesses, give a tailwind to economic growth and make it easier for everyone to follow tax rules. It's also hoped to help important industries like farming, clothing, and cars.

These changes are planned to happen around Diwali in October. A group of state finance ministers is looking at these proposals, and then the GST Council, led by the finance minister, will make the final decision. If approved, these changes will be put into action this financial year itself.

The Prime Minister also mentioned that the government will create a special team to suggest more reforms to help the economy grow faster, reduce bureaucracy, and prepare India to become a $10 trillion economy by 2047.

Trivia:

What were some of the most important taxes that GST replaced?

Although the implementation of GST abolished many taxes, the main taxes that were removed were the central excise tax, VAT (value added tax) and Octroi.