GST rate cut reminiscent of 2019; further reforms likely, says Jefferies
Key beneficiaries from the proposed GST rate adjustments include sectors like cement, two-wheelers, and air conditioners.
- Aug 18, 2025,
- Updated Aug 18, 2025 11:41 AM IST
Global investment banking firm Jefferies has projected a rationalisation of the Goods and Services Tax (GST) rate in India, expected by the fourth quarter of calendar year 2025. Jefferies said the GST rate rationalization is expected by Q4CY25. This development is anticipated to create fiscal space, bolstering the economy through a likely reduction in GST rates on various commodities, including cement, two-wheelers, and air conditioners, from the current 28% to 18% .
The anticipation of GST rate cuts is underpinned by a notable $20 billion saving on GST compensation. Jefferies outlined how this fiscal manoeuvre provides the government with much-needed room to adjust rate slabs, potentially benefiting a wide range of sectors. Industries under consideration for GST reduction include insurance, hybrid cars, processed foods, garments, footwear, and possibly passenger cars. This strategic move is seen as a reflection of the large corporate income tax cut of 2019, which was implemented amid slowing economic growth. Jefferies said GST cut echoes 2019, more reforms likely .
This GST reform is expected to harmonise tax slabs around two main rates: a merit rate likely set at 5% and a standard rate at 18%, with certain special rates retained. Such a change implies that goods presently taxed at 12% might shift to the 5% bracket, while those at 28% could move to 18%. The government also plans to address 'sin' goods, such as SUVs, cigarettes, coal, and aerated beverages, adjusting them to a combination of 40% rates or specific GST rates .
Key beneficiaries from the proposed GST rate adjustments include sectors like cement, two-wheelers, and air conditioners. The relief in GST rates is part of a broader governmental effort to support 'essential and aspirational goods.' It is anticipated that goods currently taxed at 28% will see significant relief, which could foster increased consumption and economic growth. This aligns with the government's aim to stimulate the economy through targeted tax reforms .
The potential reduction in GST for cement, from 28% to 18%, could have implications for government revenue estimated at approximately Rs 200-250 billion. Some of the benefits might be passed on through cement pricing, which could help improve margins for developers. However, the price reduction alone may not significantly drive demand elasticity, but it remains a positive factor for developer margins .
In the consumer goods sector, the removal of the 12% tax bracket is anticipated to benefit processed foods, footwear, hotels, garments, and farm equipment. Similarly, a reduction in headline tax rates for insurance premiums is expected to provide relief. The implementation of the lower tax rates may be staggered across months, with consumer items prioritised. This phased approach is crucial as the next GST council meeting is expected to finalise these changes .
Looking ahead, the proposed GST cuts could also lead to lower Consumer Price Index (CPI) inflation and interest rates, potentially prompting further rate cuts by the Reserve Bank of India (RBI), Jefferies said. However, the timing of these GST rate changes must be carefully considered to avoid disrupting consumer spending, especially as the festive season approaches in mid-September 2025. This strategic timing is crucial to maximise the impact on consumer durables and the broader market .
Aside from consumer durables, there is potential for significant impacts on the automotive sector, with expected decreases in GST for two-wheelers and small cars. Notably, if the GST slab for small cars is completely eliminated, their tax rate could drop to 18%, making manufacturers like Maruti key beneficiaries. The changes in GST slabs could thus provide a substantial push to consumption across various sectors, aiding in economic recovery and growth .
The proposed GST rationalisation is expected to impact several other sectors positively. For instance, the reduction in GST rates on textiles and apparels could alleviate the inverted duty structure, benefiting domestic garment manufacturers. Similarly, the reduction in GST on footwear, especially those priced below Rs 1,000, could enhance market competitiveness for mass footwear brands like Relaxo, while premium brands may need to absorb some tax impacts .
In the hospitality sector, a reduction in GST rates for hotel accommodations could stimulate tourism and travel, benefiting hotel chains like ITC Hotels and Lemon Tree. The broader economic implications of these GST reforms could also extend to sectors like real estate, where reduced construction costs due to lower GST on cement could improve developer margins and potentially stimulate housing demand .
Additionally, the GST rationalisation may have a ripple effect on the broader economy. By potentially lowering the cost of essential goods and services, consumer spending could see a boost, leading to increased demand across various sectors. This could result in a more robust economic environment, fostering job creation and enhancing the overall economic landscape. The strategic implementation of these tax reforms, therefore, holds the potential to not only stimulate immediate consumption but also to lay the groundwork for sustained economic growth in the long term. As the government looks to balance fiscal goals with economic stimulation, the outcome of these reforms will be closely watched by industry analysts and stakeholders.
Further, the proposed changes aim to address inefficiencies within the current GST structure, driving competitiveness across industries. The phased approach in implementing these changes, particularly for consumer-facing goods, is expected to smooth out transition challenges. The government's commitment to these reforms is viewed as a positive signal towards fostering a more dynamic economic environment. As these changes unfold, businesses and consumers alike should prepare for shifts in pricing structures and market dynamics, ultimately leading to a more streamlined and efficient tax framework.
The anticipated GST rate rationalisation underscores the government's proactive stance in navigating economic challenges. By aligning tax policies with growth objectives, there is a concerted effort to provide a conducive environment for business expansion and consumer confidence. This initiative is part of a broader strategy to integrate more sectors into the formal economy, thereby increasing transparency and compliance. The effects of these reforms could potentially set new benchmarks in fiscal policy, aligning India's economic trajectory with global standards.
Ultimately, the success of these tax reforms will depend on timely execution and effective communication with stakeholders. As the government engages with industry leaders and consumers, the focus will be on ensuring that the benefits of these changes are realised across all levels of the economy. The strategic emphasis on reducing tax burdens, promoting investment, and enhancing competitiveness could position India favourably in the global economic landscape, fostering resilience in the face of future challenges.
Global investment banking firm Jefferies has projected a rationalisation of the Goods and Services Tax (GST) rate in India, expected by the fourth quarter of calendar year 2025. Jefferies said the GST rate rationalization is expected by Q4CY25. This development is anticipated to create fiscal space, bolstering the economy through a likely reduction in GST rates on various commodities, including cement, two-wheelers, and air conditioners, from the current 28% to 18% .
The anticipation of GST rate cuts is underpinned by a notable $20 billion saving on GST compensation. Jefferies outlined how this fiscal manoeuvre provides the government with much-needed room to adjust rate slabs, potentially benefiting a wide range of sectors. Industries under consideration for GST reduction include insurance, hybrid cars, processed foods, garments, footwear, and possibly passenger cars. This strategic move is seen as a reflection of the large corporate income tax cut of 2019, which was implemented amid slowing economic growth. Jefferies said GST cut echoes 2019, more reforms likely .
This GST reform is expected to harmonise tax slabs around two main rates: a merit rate likely set at 5% and a standard rate at 18%, with certain special rates retained. Such a change implies that goods presently taxed at 12% might shift to the 5% bracket, while those at 28% could move to 18%. The government also plans to address 'sin' goods, such as SUVs, cigarettes, coal, and aerated beverages, adjusting them to a combination of 40% rates or specific GST rates .
Key beneficiaries from the proposed GST rate adjustments include sectors like cement, two-wheelers, and air conditioners. The relief in GST rates is part of a broader governmental effort to support 'essential and aspirational goods.' It is anticipated that goods currently taxed at 28% will see significant relief, which could foster increased consumption and economic growth. This aligns with the government's aim to stimulate the economy through targeted tax reforms .
The potential reduction in GST for cement, from 28% to 18%, could have implications for government revenue estimated at approximately Rs 200-250 billion. Some of the benefits might be passed on through cement pricing, which could help improve margins for developers. However, the price reduction alone may not significantly drive demand elasticity, but it remains a positive factor for developer margins .
In the consumer goods sector, the removal of the 12% tax bracket is anticipated to benefit processed foods, footwear, hotels, garments, and farm equipment. Similarly, a reduction in headline tax rates for insurance premiums is expected to provide relief. The implementation of the lower tax rates may be staggered across months, with consumer items prioritised. This phased approach is crucial as the next GST council meeting is expected to finalise these changes .
Looking ahead, the proposed GST cuts could also lead to lower Consumer Price Index (CPI) inflation and interest rates, potentially prompting further rate cuts by the Reserve Bank of India (RBI), Jefferies said. However, the timing of these GST rate changes must be carefully considered to avoid disrupting consumer spending, especially as the festive season approaches in mid-September 2025. This strategic timing is crucial to maximise the impact on consumer durables and the broader market .
Aside from consumer durables, there is potential for significant impacts on the automotive sector, with expected decreases in GST for two-wheelers and small cars. Notably, if the GST slab for small cars is completely eliminated, their tax rate could drop to 18%, making manufacturers like Maruti key beneficiaries. The changes in GST slabs could thus provide a substantial push to consumption across various sectors, aiding in economic recovery and growth .
The proposed GST rationalisation is expected to impact several other sectors positively. For instance, the reduction in GST rates on textiles and apparels could alleviate the inverted duty structure, benefiting domestic garment manufacturers. Similarly, the reduction in GST on footwear, especially those priced below Rs 1,000, could enhance market competitiveness for mass footwear brands like Relaxo, while premium brands may need to absorb some tax impacts .
In the hospitality sector, a reduction in GST rates for hotel accommodations could stimulate tourism and travel, benefiting hotel chains like ITC Hotels and Lemon Tree. The broader economic implications of these GST reforms could also extend to sectors like real estate, where reduced construction costs due to lower GST on cement could improve developer margins and potentially stimulate housing demand .
Additionally, the GST rationalisation may have a ripple effect on the broader economy. By potentially lowering the cost of essential goods and services, consumer spending could see a boost, leading to increased demand across various sectors. This could result in a more robust economic environment, fostering job creation and enhancing the overall economic landscape. The strategic implementation of these tax reforms, therefore, holds the potential to not only stimulate immediate consumption but also to lay the groundwork for sustained economic growth in the long term. As the government looks to balance fiscal goals with economic stimulation, the outcome of these reforms will be closely watched by industry analysts and stakeholders.
Further, the proposed changes aim to address inefficiencies within the current GST structure, driving competitiveness across industries. The phased approach in implementing these changes, particularly for consumer-facing goods, is expected to smooth out transition challenges. The government's commitment to these reforms is viewed as a positive signal towards fostering a more dynamic economic environment. As these changes unfold, businesses and consumers alike should prepare for shifts in pricing structures and market dynamics, ultimately leading to a more streamlined and efficient tax framework.
The anticipated GST rate rationalisation underscores the government's proactive stance in navigating economic challenges. By aligning tax policies with growth objectives, there is a concerted effort to provide a conducive environment for business expansion and consumer confidence. This initiative is part of a broader strategy to integrate more sectors into the formal economy, thereby increasing transparency and compliance. The effects of these reforms could potentially set new benchmarks in fiscal policy, aligning India's economic trajectory with global standards.
Ultimately, the success of these tax reforms will depend on timely execution and effective communication with stakeholders. As the government engages with industry leaders and consumers, the focus will be on ensuring that the benefits of these changes are realised across all levels of the economy. The strategic emphasis on reducing tax burdens, promoting investment, and enhancing competitiveness could position India favourably in the global economic landscape, fostering resilience in the face of future challenges.