(MENAFN) India is set to implement its largest tax overhaul since 2017, reducing the goods and services tax (GST) ahead of the Diwali festival, Prime Minister Narendra Modi announced. The reform introduces a simplified two-tier system with rates of 5% and 18%, replacing the current four-tier structure with a top rate of 28%.

Modi urged Indian states to approve the “next-generation” GST reforms, aiming to lower taxes on 99% of items in the 12% bracket to 5%, including daily essentials, while electronic products will see a reduction from 18% to 12%.

The government anticipates that lower taxes will boost domestic consumption, helping offset potential export losses from upcoming US tariffs on Indian imports. Small cars and health and life insurance premiums may also see GST cut to 5% or zero.

Officials expect the reforms to simplify tax processes, improve compliance, and sustain revenue, while potentially increasing India’s GDP growth by 0.6% annually, though state and federal GST revenues could decline by up to $20 billion.

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