Indian PM Modi's tax reform set to slash levies on shampoos, hybrid cars, TVs

By Nikunj Ohri and Aditi Shah

NEW DELHI, Sept 1 (Reuters) - India plans to cut consumption tax by at least 10 percentage points on nearly 175 products ranging from shampoos and hybrid cars to consumer electronics, two sources said, revealing new details of Prime Minister Narendra Modi's tax overhaul.

The biggest reform of the goods and services tax system in nearly a decade comes amid strained trade ties with the U.S., with Modi making repeated calls for increased use of Indian products. Modi first flagged his reform plan last month on Independence Day when he said he would make daily products cheaper for people in the world's fifth largest economy.

His proposal includes reducing goods and services tax (GST) on consumer items such as talcum powder, toothpaste and shampoo from 18% to 5%, which is likely to boost sales at companies like Hindustan Unilever HLL.NS and Godrej Industries GODI.NS.

Air conditioners and television sets could see GST drop from 28% to 18% ahead of the Diwali shopping season starting in October, when brands like Samsung 005930.KS, LG Electronics 066570.KS, and Sony 6758.T dominate sales.

India's GST council, which is headed by federal Finance Minister Nirmala Sitharaman and has representation from the country's states, is expected to finalise the list of items for tax cuts in a meeting on September 3-4.

The finance ministry did not immediately reply to an email seeking comments on this story.

The proposed tax cuts are also aimed at cushioning the expected fall in exports to the United States by boosting domestic consumption, helping raise farm incomes and encouraging self-reliance among Indian manufacturers.

India is planning to cut consumption tax on key export items like fertilisers, farm machinery and tractors and their parts to 5% from 12% or 18% at present. The reduction also extends to the textile sector - one of India's largest exporters - that has been hard hit by U.S. President Donald Trump's tariff blitz.

CARS AND COLAS

In a win for Japanese carmakers Toyota Motor 7203.T and Suzuki Motor 7269.T, Modi's government has proposed reducing GST on small petrol hybrid cars to 18% from 28%. The carmakers have for years lobbied for cuts to tax on a technology they say is cleaner than petrol cars.

Lowering the tax on hybrids, which use a combustion engine and electric motor to power the vehicle, will bring it closer to the 5% GST on electric cars.

Indian EV makers Tata Motors TAMO.NS and Mahindra & Mahindra MAHM.NS have previously expressed fears that reducing the tax on hybrids risks derailing the country's electrification ambitions.

The government has also proposed cutting the tax on motorcycles and scooters with an engine capacity of less than 350cc, which mainly includes commuter vehicles and covers 95% of close to 20 million two-wheelers sold in India last fiscal year by companies including Bajaj Auto BAJA.NS, Hero MotoCorp HROM.NS and TVS Motor TVSM.NS.

The proposed tax cuts are expected to lead to a resurgence in the sale of small cars in the world's third-largest automobile market - a boost for Maruti Suzuki MRTI.NS, India's largest carmaker, as well as rivals Hyundai Motor HYUN.NS and Tata Motors TAMO.NS.

However, bigger cars, categorised as those longer than 4 meters in length and with a large engine capacity, will see a higher GST of 40%, up from 28%, but the government is expected to lower additional levies to keep the overall rate the same at around 50%.

India is also considering raising rates on items like coal as well as services like betting, casinos and horse racing while maintaing levies on colas and other carbonated drinks made by the likes of PepsiCo PEP.O, Coca-Cola KO.N and homegrown Reliance Industries RELI.NS, despite calls for tax cuts.