GST reform to offset growth drag from 50% US reciprocal tariff: BMI

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The proposed GST reforms, which would lower tax rates on common man items, will boost consumption and could cancel out the impact of 50 per cent US tariffs, BMI, a Fitch Solutions Company, said on Thursday.

Since its inception, Goods and Services Tax (GST) has grown to be the second-largest source of fiscal revenue after income tax, amounting to around 30 per cent of total revenue and 2.5 per cent of GDP in FY2024-25.

However, the fiscal impact of the reform will probably be mild, BMI said.

Goods and services are currently charged under a four-tier system with rates ranging from 5 per cent to 28 per cent.

GST reform, proposed by the Centre, says that most goods will be charged at either 5 per cent or 18 per cent. Durables such as washing machines, air conditioners and refrigerators will be among the goods charged lower rates under the new GST regime.

The GST Council, chaired by Union Finance Minister and comprising ministers from all states and UTs, will meet on August 3 and 4 to discuss the reform.

"The GST reform could cancel out the drag on growth from the tariffs. Given that the details have yet to be confirmed, we highlight the GST reform as a slight upside risk to our growth forecast for now," BMI said.

BMI has revised down its GDP growth forecasts to 5.8 per cent for FY2025-26 and 5.4 per cent for FY2026-27.