The Double Edge of Reform
The government’s decision to collapse multiple slabs into two — 5% and 18% — has been widely welcomed. Everyday items, medicines, and consumer durables are now cheaper, boosting demand. But luxury goods, such as imported cars, fine spirits, and premium electronics, continue to face the highest GST slab, coupled with cesses, making them significantly more expensive.
Why the Government Defends It
Policymakers argue that taxing luxuries heavily is necessary to fund relief for the masses. With India’s vast population depending on affordability, shifting the tax burden upward appears fair. It also preserves revenue while ensuring essential items remain within reach of the poor and middle class.
The Risk of Discouragement
However, this model could backfire.
- Global luxury players may delay launches or avoid India altogether.
- Domestic premium brands may limit investment in high-end product lines.
- Grey markets could thrive as buyers seek cheaper parallel imports.
These outcomes risk positioning India as a market only for mid-tier consumption, not for aspirational or flagship luxury products.
Middle Class Gains, Luxury Loses
The reforms undeniably boost middle-class purchasing power, which is expected to drive economic growth. Yet, the luxury industry faces stagnation, forced to rely on a narrow base of ultra-wealthy consumers willing to pay inflated prices.
The Way Forward
Experts suggest a tiered approach to luxury taxation. Instead of one flat high rate, differentiated slabs within the premium segment could encourage investment and broaden choices for consumers. India’s economy is maturing, and demand for luxury is rising — but whether brands see India as a viable luxury market will depend on how tax policy evolves.