GST Reform 2025
An overhaul in GST rate slabs, coupled with support from other measures such as personal income tax cuts, monetary policy easing, signs of pickup in job growth, and improving real wages, is expected to boost consumption and domestic demand in India, according to a report by Morgan Stanley.
The central government is likely to conduct a major overhaul of GST — a key source of indirect tax revenue. In a report dated August 17, Morgan Stanley stated that these next-generation reforms should support consumption.
“Apart from this, personal income tax cuts, monetary policy easing, and signs of a pickup in job growth and improving real wages should also support consumption in the next few quarters,” the report read. The analysis was authored by economists Upasana Chachra and Bani Gambhir.
During his Independence Day speech from the Red Fort, Prime Minister Narendra Modi announced upcoming next-gen GST reforms, expected to roll out before Diwali to benefit consumers, small industries, and MSMEs.
Soon after, the Finance Ministry outlined a proposal for a simplified two-tier GST system based on three pillars: structural reforms, rate rationalisation, and ease of living.
Earlier this week, government sources indicated a plan to eliminate the current 12% and 28% GST slabs, retaining only 5% and 18%. As part of the proposal, 99% of the items currently taxed at 12% are expected to shift to the 5% slab, while 90% of items in the 28% slab may move to 18%.
The Group of Ministers (GoM) will study the proposal, and a GST Council meeting is likely to be held in September-October to review it.
Morgan Stanley noted, “We think the proposed new GST regime will likely have meaningful impacts on growth, fiscal balance, and CPI inflation, with implications for monetary policy. In the near term, there could be some impact on volume growth as consumers potentially defer their spending until clarity emerges on the new GST regime. However, once the new GST rates come into force, there should be a recouping of potential deferred demand alongside support through improved affordability.”
According to Morgan Stanley, the total size of the stimulus is estimated at about 0.5–0.6% of GDP annually. “We expect the net effect on growth to be positive as the multiplier for indirect tax cuts is 1.1, implying potential upside of 50–70 basis points,” it added.
Consumption currently accounts for 60% of India’s GDP, making it the backbone of the domestic demand narrative.
(From ANI)
(Disclaimer: This content is taken from ANI Wire Service and is syndicated for informational purposes only.)
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