Govt to cut essential taxes, raise duties on luxury goods in FY27

The government is preparing a major shift in fiscal policy for the 2026–27 national budget, aiming to reduce taxes on essential goods and domestic industries while increasing duties on luxury and harmful products, according to finance ministry sources.

The proposed budget focuses on strengthening local manufacturing, reducing inflationary pressure, and expanding technology-driven sectors. Taxes on around 60 essential items -- including rice, wheat, edible oil, and sugar -- are expected to be significantly reduced, with the source tax likely to be cut to 0.5 percent.

Support for domestic industries is also set to expand, with plans to lower VAT on locally produced electronics such as televisions, refrigerators, and air conditioners to 7.5 percent. Additional incentives are being considered for mobile phone production, solar energy, and startup financing.

At the same time, the government is preparing higher duties on tobacco, alcohol, cashew nuts, imported luxury foods, and selected cosmetics to compensate for revenue losses. Supplementary taxes on cigarettes and nicotine products are expected to rise sharply.

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Key health-related imports, including dialysis equipment and cancer drug raw materials, are likely to receive tax exemptions to reduce treatment costs. The fiscal deficit is expected to be financed through domestic borrowing and external assistance.