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Tax reform by Indian PM Modi to cut levies for shampoos, hybrids and TVs

Two sources revealed that India will cut the consumption tax on 175 different products, from hybrid cars and shampoos to consumer electronics.

Modi has repeatedly called for increased usage of Indian products. This is the biggest reform to the goods and service tax system in almost a decade. Modi announced his first reform plan on Independence Day last month when he promised to make everyday products cheaper in the fifth largest economy of the world.

His proposal reduces the goods and services (GST), which includes toothpaste, talcum, and shampoo, from 18% down to 5%. This is expected to increase sales for companies such as Hindustan Unilever, and Godrej Industries.

GST on televisions and air conditioners could drop from 28% down to 18% before the Diwali shopping spree, which begins in October. Brands like Samsung, LG Electronics, and Sony will dominate sales.

The GST council in India, headed by the federal Finance Minister Nirmala Sitharaman, and with representation from all the states of the country, will finalise a list of tax-cutting items at a meeting scheduled for September 3-4.

A request for comment on this article sent to the Finance Ministry by email was not immediately answered.

The tax cuts proposed are also intended to cushion the expected drop in exports into the United States, by increasing domestic consumption and helping increase farm incomes.

India plans to reduce consumption tax for key exports like farm machinery, tractors, and fertilisers to 5%. The current rate is 12%. India is also reducing consumption tax on key export items like fertilisers, farm machinery and tractors as well as their parts to 5% from 12% or 18% at present.

CARS AND COLAS

Modi's Government has proposed to reduce GST on small petrol-hybrid cars from 28% to 18%. This is a victory for Japanese automakers Toyota Motor and Suzuki Motor. For years, carmakers have lobbied to reduce taxes on a technology that they claim is cleaner than petrol vehicles.

The tax on hybrid vehicles, which are powered by a combustion motor and an electric motor, can be lowered to match the 5% GST for electric cars.

Tata Motors, Mahindra & Mahindra and other Indian EV manufacturers have expressed concerns that lowering the tax on hybrids could derail the country's electricification ambitions.

The government also proposes reducing the tax on motorcycles, scooters, and commuter vehicles with engine capacities less than 350cc. This includes 95% of the close to 20 millions two-wheelers that were sold in India during last year's fiscal year, by companies such as Bajaj Auto Hero MotoCorp, and TVS Motor.

The proposed tax cut is expected to boost the sale of small vehicles in India, the third largest automobile market in the world. This will benefit Maruti Suzuki as India's biggest carmaker as well as its rivals Hyundai Motors and Tata Motors.

The government will lower the additional charges to maintain the rate at 50%.

India may also raise rates on coal, as well as on services such as betting, horse racing, and casinos, while maintaining levies on carbonated drinks and colas made by PepsiCo and Coca-Cola, as well as homegrown Reliance Industries. This is despite calls for a tax cut. (Reporting and editing by Toby Chopra, Mark Heinrich and Nikunj Ahri)

(source: Reuters)