INDIA aims to slash taxes on small cars and insurance premiums as part of a sweeping reform of its goods and services tax (GST), a government source said yesterday, sparking a rally in Indian stock markets.
Prime Minister Narendra Modi’s administration revealed plans over the weekend for the largest tax overhaul since 2017, with consumer, auto and insurance companies likely to emerge as the biggest winners when product prices drop from October, once the reform is approved.
The federal government has suggested lowering GST on small petrol and diesel cars to 18 per cent from the current 28pc, said the source who is directly involved in the matter.
The consumption tax on health and life insurance premiums may also be lowered to 5pc or even zero from 18pc currently, the same source said.
Shares of Maruti Suzuki, the biggest seller of small petrol cars in India, surged nearly 9pc yesterday, leading a rally in auto shares that helped push India’s benchmark Nifty index 1.3pc higher, on course for its best day in three months.
Shares of other carmakers such as Mahindra & Mahindra, as well as motorbike manufacturers like Hero MotoCorp and Bajaj Auto, which will also benefit from tax cuts, jumped 2pc-4pc yesterday.
Stocks of insurance companies such as ICICI Prudential , SBI Life, and LIC rose as much as 2pc-5pc before pairing some gains.
Modi’s deep tax cuts will strain government revenues but have drawn praise from businesses and political pundits who say they will bolster his image in an ongoing trade fight with Washington.
Maruti chairman R C Bhargava said the tax rationalisation is a “huge reform”.
“With more affordability, more people will come into the purchasing system,” said Bhargava, who declined to comment on proposed tax cuts on small cars until the fine print is out.
“This restructuring of the GST will increase competitiveness of Indian products and the opening of trade borders will bring in the necessary competition. Competition, combined with your ability to produce and sell at lower prices, makes for the best efficiency,” he added.
Federal government officials over the weekend said New Delhi has proposed only two rates of taxation – 5pc and 18pc – under the revamped structure. The highest 28pc rate will be abolished.
The new proposal, however, will impose a 40pc tax on 5-7 “sin-goods” like tobacco products and luxury items.
The announcement will not be effective until the GST Council, which is chaired by the federal finance minister and has representatives from all states, gives a nod. A meeting is expected by October.
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