The largest reduction in eight -year taxes announced by the Indian Prime Minister, Narendra Modi, will weigh on state revenues but arouse the praise of business circles and political analysts, which believe that they will strengthen its image in the current commercial showdown with Washington.
In the largest tax reform since 2017, the Modi government has released major changes on Saturday in the goods and services tax system (GST), which will make basic necessities and electronics cheaper from October, for the benefit of consumers but also groups like Nestlé, Samsung and LG Electronics.
At the same time, during his speech on August 15, Modi urged the Indians to consume more locally produced products, echoing the calls of many supporters to boycott American products after Donald Trump raised customs duties on Indian imports 50 % in August 27.
This drop in taxes is not without consequences, the GST constituting a major source of revenue. According to IDFC First Bank, these measures should stimulate Indian GDP of 0.6 percentage points over 12 months, but will cost $ 20 billion a year to central and state governments.
But the reform should improve the gloomy climate of the scholarship and offer political dividends to Modi before a crucial election in the state of the Bihar, believes Rasheed Kidwai, researcher at the observer Research Foundation foundation, based in New Delhi.
“GST reduction will affect everyone, unlike the drop in income tax, paid only by 3 to 4 % of the population. Modi acts under the pressure of American policies, ”says Kidwai.
“The measure will also benefit the scholarship, which is now of political importance due to the growing number of private investors”.
India launched this major tax system in 2017, merging the local taxes of states in a new national GST, to unify its economy for the first time.
But this greater tax reform since independence has been criticized for its complexity, taxing products and services according to four sections: 5 %, 12 %, 18 %and 28 %.
Last year, India decided that caramel popcorn would be taxed at 18 %, but the 5 %salty version, illustrating the complexity of the GST system.
According to the new device, India will abolish the 28 % tranche-which concerned in particular cars and electronics-and will bring together almost all items in the 12 % tranche in that at 5 %, thus benefiting many consumer products and processed foods.
Government data shows that 28 % and 12 % tranches represent 16 % of the $ 250 billion in GST annual revenue in the last financial year.
“A brighter gift” and politics
Bihar is a key political state and must vote by November. A recent survey of the Voting Agency shows that Modi’s opposition has a slight advance, mainly due to the lack of jobs.
“Any drop in taxes is widely appreciated by the public. But of course, the calendar is dictated by political imperatives ”, analyzes Dilip Cherian, communication consultant and co -founder of the Indian public relations agency Perfect Relations.
“This reflects a mixture of frustration and an awareness of strong public opposition to high and penalizing tax rates. »»
The ruling party, the Bharatiya Janata Party, has taken up the Modi tax announcement, publishing on X that at the Hindu party of Diwali, “a brighter gift of simplified taxes and savings awaits each Indian”.
Moda has promised to protect farmers, fishermen and breeders, after Trump’s surprise decision to impose customs duties on India, following the failure of commercial negotiations between New Delhi and Washington on the opening of Indian agricultural and dairy sectors and the stopping of Russian oil purchases.
The last session of commercial discussions provided between the two countries, from August 25 to 29, was also canceled.
($ 1 = 87,5080 Indian rupees)
(Written by Nikunj Ohri, Aftab Ahmed and Aditya Kalra; Edition by Sonali Paul)
