GST, income tax cuts to spark sustained economic growth, say experts

GST Reform 2.0, which trims tax slabs from four to two, signals a push for demand-led growth, and, together with recent income tax cuts, sets the stage for sustained economic growth, experts have said.

The Goods and Services Tax (GST) Council on Wednesday approved an overhaul of the indirect tax regime by taxing essentials at 5 per cent and other goods at 18 per cent. A new 40 per cent tax will be applicable on luxury and sin items.

The rejig, to be effective from September 22, aims to simplify the tax structure, ease compliance, boost disposable income and spur overall demand. Key segments/ sectors that stand to benefit include consumer staples (food and personal), retail (apparel and footwear), automobiles (especially small cars and two-wheelers), insurance, renewables and agro chemicals.

“These GST changes, combined with benign inflation, income tax cuts in February, and accommodative monetary policy, create an environment for sustained growth,” HSBC Global Investment Research said in a note.

A revival in demand should also provide a much needed boost to private sector capex that has been sluggish for several years.