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Sources said the Central government is committed to implementing reforms and rate cuts before the festive season. The rate cuts may take effect latest by September 20, they said.
Festive timing drives urgency
If the GST Council, which will meet here on September 3-4, approves the rate changes, businesses will likely be given two weeks to make changes in their systems, the sources added.
The GST rate cuts will also coincide with the end of Pitru Paksha (September 7-21) in the Hindu calendar, dedicated to honouring and remembering one’s ancestors. During this period, in large parts of India, people do not buy any vehicles or new items.
Early rate cuts will also help businesses facing the postponement of purchases by consumers anticipating benefits from GST changes.
With tax rate-related uncertainties affecting purchases in many sectors, including automobiles, the GST Council meeting, which was initially being planned for mid-September, was advanced to September 3-4, the sources said.
The government wants consumers to benefit, and businesses to step up production amid global uncertainties due to proposed higher tariff on Indian goods by the US.
Impact on consumers and revenue
The fast-tracking of GST reforms assumes importance after the group of ministers (GoM) on rate rationalisation gave its concurrence to the Centre’s proposal in just one sitting (August 21) for a reduction in tax slabs and rates, even as some Opposition-ruled states sought compensation for revenue losses.
“Given the upcoming festival season of Navratri, followed by Dassehra and then Diwali, the new GST rates should be made applicable from 15th September or even earlier in order for businesses to be able to stock enough, subject to the GST Council giving its approval in the meetings scheduled for September 3rd and 4th “said Rahul Renavikar, managing director, Acuris Advisors.
Purchases of cars and bikes have slowed as consumers are holding back their purchases from the time the new GST slab news came out.
Demand has been picking up for the premium segment, and this will be a big negative from that perspective for consumer sentiments, said an executive from one of the premium bike makers.
Apart from streamlining the multiple slabs under GST into a two-pillar structure of 5% and 18%, the proposal intends to levy a special rate of 40% on sin and luxury goods. The existing rates of 12% and 28% will be abolished.
Since the proposed GST reforms with a two-tier structure may lead to a Rs 60,000 crore to Rs 85,000 crore annual revenue loss for both the Centre and states, the Council will also debate how that will be addressed. The Centre is of the view that the actual impact could be short-lived as rate cuts boost consumption and compliance.
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Among the items that could become cheaper are food items, medicines, cement, small cars, air-conditioners, and several fast-moving consumer goods. Almost 99% of goods under the 12% slab, including essential commodities consumed by the common man, will attract 5% tax, while the remaining ones will move to 18%. Similarly, 90% of goods attracting 28% will move to the 18% slab.
While Prime Minister Narendra Modi announced the revamp of the eight-year indirect tax in his Independence Day speech, as a “Diwali gift” to India’s consumers, the finance ministry later posted on X that the move would “enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population”.