India’s New Landmark Tax Reform To Boost Luxury Sales

India has overhauled its local VAT system, known as GST (Goods & Services Tax), for the first time in 8 years. Taxes have been slashed on products ranging from daily essentials to luxury items, to fuel consumer spending across all income groups. Luxury cars that were earlier facing a total of 50% tax will now be charged 40%. Taxes on a range of premium home and lifestyle products will be brought down from 28% to 18%. Notably, luxury watches tipped for a tax hike, remain unaffected.

This new tax structure will come into effect as early as 22 September, this year, ahead of India’s biggest festive season - Diwali, celebrated in mid-October, and the winter wedding season.

The GST system was introduced in India in 2017, in a bid to reform an archaic tax system that had remained largely unchanged since independence (1947). Before GST, India did not have a national tax structure. Every state in India imposed its own tax rules on goods and services, creating a complex and fragmented system that complicated trade and investment in the country. The GST system replaced this patchy state-wise structure with one, uniform national tax structure, making it easier to do business across India.

When the GST system was introduced, goods and services were divided into four tax slabs; 5%, 12%, 18% and 28%. Eight years on, in a bid to simplify it even further, the number of slabs is cut to just two; 5% and 18%. This means that taxes of products that were in the 12% and 28% slabs have been reduced in the latest GST system, to accommodate them into the 5% and 18% tax slabs. The tax reduction will affect a wide-range of goods - such as luxury home and office products like top-end fridges, air-conditioners, luxury furniture to industrial items like auto-parts.

Only a handful of products such as tobacco and aerated drinks that are considered harmful for health, and luxury auto, yachts, private air-crafts that are non-essential items, will be slotted in a special 40% GST category.