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Narendra Modi, Prime Minister of India |
[Alpha Biz= Paul Lee] New Delhi, August 18, 2025 – The administration of Prime Minister Narendra Modi has announced the country’s largest tax reform in eight years, unveiling a sweeping reduction of the Goods and Services Tax (GST) to stimulate domestic demand and cushion the impact of recently imposed 50% U.S. tariffs.
Introduced in 2017, India’s GST has long been criticized for its complexity, dividing goods and services into four tax slabs of 5%, 12%, 18%, and 28%. Under the new reform plan, the government will simplify the structure into just two rates – 5% and 18%. The highest 28% bracket, previously applied to automobiles and electronics, will be abolished.
Key measures include:
Consumer goods: Most items previously taxed at 12% will drop to 5%, lowering costs on packaged foods and daily necessities.
Insurance: Health and life insurance rates will fall from 18% to 5%, or be eliminated entirely.
Automobiles: Small car GST will be reduced to 18%. Large vehicles will continue to face a combined effective rate of 43–50% including surcharges.
Sin goods: Tobacco and luxury items will be subject to a new “sin tax” of up to 40%.
The reform, pending approval by the GST Council in October, is expected to lower consumer prices, benefitting sectors such as insurance, consumer goods, and automotives. On the day of the announcement, Maruti Suzuki shares surged 8.75% and Hyundai Motor India gained 8.15% on the National Stock Exchange, reflecting investor optimism for the auto sector.
While the government projects the tax cuts will add 0.6% to India’s GDP over the next 12 months, they also acknowledge an estimated $20 billion (₩27 trillion) annual revenue shortfall, as 16% of last year’s $250 billion GST revenue came from items affected by the cuts.
Despite the fiscal cost, analysts note the move could help offset the economic shock from U.S. tariffs while shoring up Modi’s domestic approval ratings ahead of future political tests.
알파경제 Paul Lee 특파원(hoondork1977@alphabiz.co.kr)
