Indian PM dangles tax cuts after painful US tariffs threat

Indian Prime Minister Narendra Modi's push to slash consumption taxes on everyday goods could deliver billions of dollars in annual relief and boost demand in an economy bracing for painful US tariffs, experts say.

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US President Donald Trump has threatened to double import duties on India from 25 to 50 per cent to punish New Delhi for buying oil from Russia, saying the purchases help Moscow fund its invasion of Ukraine.

The prospective measure has clouded the outlook for the world's fifth-largest economy, with Indian exporters warning of plunging orders and severe job losses.

New Delhi has called Washington's move “unfair, unjustified and unreasonable” but is already seeking to cushion the blow, with Modi last week promising to “bring down the tax burden on the ‘common man” during an annual speech to mark India’s independence.

His proposed cuts to the goods and services tax (GST) would make everything from small cars to air conditioners cheaper for consumers, economists say.

Currently, the tax operates under a complex four-tier structure, with rates ranging from five to 28 per cent.

Under Modi’s reforms, most goods would fall into just two tiers, taxed at either five or 18 per cent.

The Indian leader has called the change a “Diwali gift”, a reference to the annual Hindu festival of lights when consumers splurge on everything from gold and clothes to consumer electronics.

'SIZEABLE SAVINGS': Trump's tariffs - and their impact on ordinary Indians - will hinge on how much progress is made towards a Russia-Ukraine peace deal, and whether New Delhi can secure alternative oil suppliers before the US president's August 27 deadline.