With the GST passed in the parliament, it brings a sense of fresh beginnings for the industry. Hoping to build a India into one common market, free movement and supply of goods in the country and promote the ease of doing business and promote transparency, the GST is set to be a game changer. It is still difficult to ascertain the exact figures representing the change, we have a reasonable idea about the impact GST is going to have on the different sectors of the economy.
The impact on each industry is twofold, in some ways positive and in some ways negative, and the unsure of how GST will actually play out gives us only an ‘estimation’ of the impact in the following way:
Largely, manufactured goods are slated to be the biggest beneficiaries from the rollout of GST, as they fall on the high Tax Rate slab.
- Automobiles: Input costs are set to decrease with the expected removal of excise duty. As per reports, price of automobiles could drop by around 8% as the auto industry pays around 27% in taxes, way more than the expected tax rate under GST. Lower price for consumers is set to boost demands. Companies to have advantage include Maruti Suzuki India Ltd and Mahindra and Mahindra Ltd.
- Cement: With the current tax rate of 23–25% decreasing to an estimated 18%. The cement industry will be leaded with decrease in transportation costs and part of the savings could be passed on to the consumers to boost demand. Some part will save earnings by companies like UltraTech, ACC, Ambuja etc.
- FMCG: Consumer goods companies are set to save considerable amounts in logistics and distribution cost. FMCG companies pay 24-25% in taxes including excise duty, VAT and entry tax. A GST rate of 17-19% will reduce taxes and warehouse rationalisation is expected to increase savings.
- Multiplexes: Multiplexes pay taxes conforming to three broad areas, a) entertainment tax b) value added tax (VAT) and c) service tax. All of these would reduce with the coming in of GST which is set to reduce the earnings before interest, taxes, depreciation and amortization.
- Logistics: This sector is expected to receive a boost in the supply chain management and decrease transit time. The removal of interstate barriers will result in more commerce. The commercial and economic efficiency due to the tax reform could lead to creation of new and expanded logistics hubs.
- Retail: Input tax credit on rent is set to go down, increasing margin expansion. The better supply management chain may bring about lower inflation could be help for policymakers given the new inflation targeting framework adopted in India last year.
- Capital Goods: Indirect taxes expected to fall from 29%-30% to 18%-20% will benefit the light electrical sector. Havells, V-guard, Bajaj electricalsetc likely to be benefitted.
- Real Estate: With lower procurement and construction costs and funding, real estate is expected to gain higher margins. The proposed tax rate is less than the present indirect tax rate of 25%. Logistics hubs will expand with the increase in construction of warehouses benefitting private developers.
Service related sectors are set to have an unfavourable impact from GST as they will have to pay out a higher tax Rate under GST (around 18%) comparing with the present (15-16%):
- Telecom: Tax rate going up from 15% to a proposed 18% will cause decreased margins for mobile operator in the short term, as they will not be able to instantly roll out the increased rates to their prepaid customers who constitute a large portion of their subscriber base.
- Banking and Financial Services: The current rate of effective tax is 14% for the banking sector. The effective tax rate for fee-based transactions most likely rise leading to a moderate increase in cost of financial services like processing fee, credit/debit card charges, insurance premium etc.
- IT: The IT industry is subject to a 14% indirect tax. With GST, it will be increased to around 18%. But, this sector earns a major part of its profits from exports which is exempted under GST, which is still exempted.
After the implementation of GST, there will be only one tax applicable accross places.
To know about present Taxation system . Click here…..
The post The winners and losers from GST appeared first on TaxRaahi Learn Section.