00:00This buzz on the Lal Street, Indian stocks touched new highs today with both the Sensex
00:08and the Nifty witnessing solid gains.
00:10So, what is driving this surge?
00:13An announcement from the Indian Prime Minister.
00:15Listen to this.
00:16This is a great deal.
00:34India is set to reform the GST, that's the goods and services tax.
01:00The plan is to slash tax rates in a big way.
01:02The GST is an indirect tax consumers pay it when they buy goods or use services.
01:08It's built into the prices that you pay at the store and it affects nearly everyone.
01:14Unlike income tax, which is paid on earnings, GST is paid on spending.
01:18It is included in most purchases from mobile recharge to haircuts, from clothes to cars.
01:24Whenever you buy something, you pay GST.
01:28Now this tax is set to come down and that matters.
01:32To understand why this move is significant, let's look at how the system works today.
01:36Right now the GST has four slabs.
01:385%, 12%, 18% and 28%.
01:42Reports say the government wants to cut this to just two slabs.
01:46It wants to remove the 12 and 28% brackets.
01:50This would leave just two slabs, 5% and 18%.
01:54So it's going to be a simpler structure and a big shift in India's tax system.
02:00This move could have a major impact on prices and I'll tell you how.
02:04Most items currently taxed at 12% will be shifted to the 5% slab and that's going to be a big drop.
02:12And this list from 12 to 5% includes everyday items like processed foods, dairy products like butter and cheese, mobile phones and computers.
02:22These are things people use every day.
02:25Now they will be taxed less.
02:27Then we have the 28% slab.
02:30Today that rate is reserved for luxury goods like your high end cars, air conditioners, large television sets.
02:36They're all charged 28% GST.
02:41Now under the new plan, 90% of these products will be moved to a lower slab.
02:46They will be taxed at 18%.
02:48So that's a direct saving of 10%.
02:51Naturally, these lower taxes should mean savings for consumers.
02:55And that is why the stock market jumped today.
02:58Shares of car companies rallied.
03:00If GST is cut, they stand to gain and gain in a big way.
03:04Small cars could get cheaper.
03:06They would be taxed at 18% instead of 28%.
03:10Fewer taxes mean more affordable cars and more sales.
03:14Insurance stocks also rose because they could benefit from lower GST too.
03:19Reports say insurance premiums could fall to 5% or even zero.
03:24This would apply to health and life insurance.
03:26Right now they're taxed at 18%.
03:29So for consumers that's going to be a big saving.
03:32At the same time, remember this is still a proposal.
03:35It has not been approved yet.
03:36The final decision lies with the GST council.
03:39This council is headed by the finance minister of India, Nirmala Sitaramal.
03:42It also includes finance ministers from all states.
03:45Because states share GST revenue with the center.
03:48They have a direct say in tax decisions.
03:50So this proposal will need their approval too.
03:53Every state will have to vote and think it through carefully.
03:58Because a tax cut comes at a cost.
04:02The government could lose up to 1.5 lakh crore in revenue.
04:06That's more than 17 billion dollars.
04:08This loss would be split between the center and the states.
04:12The GST council meets in October.
04:15That's when this proposal should come up for discussion.
04:17And while the tax cuts are being discussed,
04:19the government also plans to raise taxes on certain sin goods.
04:23Like tobacco.
04:25Tobacco products could face a 40% tax.
04:29Reports say the government will engage with the states to build consensus.
04:33This reform holds a lot of promise.
04:35It could give a big push to consumption and demand if executed right.
04:40As always, the devil is in the detail.
04:43We'll have to wait and see how this one plays out.
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