GST reforms proposal: Auto, insurance sectors may benefit most
Prime Minister Modi's announcement of a revamped GST structure with only 5% and 18% slabs sent shockwaves through the Indian stock market. The Nifty and Sensex experienced significant gains, exceeding 1 percent in a single trading session. This reform, expected to benefit the auto and insurance sectors, is touted as the biggest since 2017.
New Delhi: Prime Minister Narendra Modi's announcement of lowering GST and reframing it into two slabs, viz., 5 percent and 18 percent, helped the stock market to rally on Monday, with NIFTY going 1.3 percent up and SENSEX jumping 1000 points at the time of writing this article.
It is being touted as the biggest tax reform the country since 2017, when the GST was rolled out. The expected reforms are likely to benefit the auto and insurance sectors most whenever the final reforms are implemented from October, as reported by Reuters.
GST reforms: Which sectors would be affected
The government plans to bring down the GST on small petrol and diesel cars (hatchbacks) from the current 28 percent to 18 percent, said the official who is directly dealing with this matter. Further, the lowering of GST on premiums of health and life insurance is expected. The GST on such insurance premiums is currently levied at 18 percent. The reforms plan to bring the GST to 5 percent or to zero, said the same source.
Dalal Street rallied today, with benchmark indices NIFTY and SENSEX going skyrocketing. The surge was also seen in auto stocks.
Reforms in GST taxation "would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population." said Mahesh Nandurkar, equity analyst at Jefferies, as quoted by Reuters. "Maruti (Suzuki) should be the biggest beneficiary of this potential cut," he further added.
The change in taxation structure is set to strain the coffers of government. However, the decision is being praised by business and political pundits who are saying this would enhance PM Modi's image in the ongoing trade tension with the US administration.
GST reforms
Currently, GST is levied through four tax slabs, viz., 5, 12, 18, and 28 percent. In the revamped structure, the proposed slabs would be 5 and 18 percent. The highest slab of 28 percent is set to be abolished. However, the new proposal is expected to include a 40 percent taxation on several sin goods like tobacco products, gambling, and luxury products.
The reforms will only be effective after passing through the GST council. The said council is the prime body for the GST, which will decide the due course of the reforms. The council is chaired by the finance minister and constitutes finance ministers of all the state governments. The next GST council meeting is expected by October.