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GST Bill Forecast an exclusive report by

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Most awaited Goods and Services Tax (GST) bill has passed in Rajyasabha anonymously on 3rd August 2016. Indirect taxes in India have driven businesses to restructure and model their supply chain and systems owing to multiplicity of taxes and costs involved. With hopes that the Goods and Services Tax (GST) will see the light of the day, the way India does business will change, forever.


Goods and Services Tax (GST) is an indirect tax reform which aims to remove tax barriers between states and create a single market Once this step is taken, the tax barriers between states, and centre and states will disappear.Total tax collection in India (direct & indirect), currently stands at Rs 14.6 lakh crore, of which almost 34% comprises indirect taxes, with Rs 2.8 lakh crore coming from excise and Rs 2.1 lakh crore from service tax. With the implementation of the GST (Goods and Services Tax), the entire indirect tax system in India (excise, state-level VAT, service tax) is expected to evolve. The tax revenue mix can change as per the economic condition of the country.

Sector to watch closely after the GST bill passes

GST will have strong positive impact on many business and sectors. GST will be encouraging for many businesses having strong domestic focus by restricting tax to the certain level. Main objectives of the GST are ensuring availability of input credit across the value chain. Minimizing cascading effect of taxation

Banking and NBFC sector
Banking and NBFC sector are considered as backbone of the economy & thus always has a high synchronization capacity with the economic events. Banking sector will be impacted positively in the coming month as GST will likely to infuse liquidity in the markets by cutting tax rate.

On the retail side lower interest rates will likely to make loans cheaper so NPA’s of the banks will likely to reduce which will also help to strengthen the balance sheet. This will also improve asset quality of the banks and NBFC’s.

Private Banks like HDFC Bank, IndusInd Bank & Yes Bank will be the key banks to watch. Also NBFCs like HDFC Ltd, LIC Housing Finance, L&T Finance Ltd, Shriram transport, will likely to remain top picks for the sector.

Auto and Auto Ancillary Sector
Auto and Auto ancillary sector is also consider as highly capital intensive business in nature. Sector to benefit from GST as tax rates will be lower it will also be expected to lower the costing and demand to grow. We believe that GST will affect the sector positively by making affordable for the more number of people. Central Government policy of infusing money into infrastructure development will also help to boost the commercial vehicles segment. This will help to improve the volumes and makes the sector more lucrative.

We recommend BUY on Maruti Suzuki Ltd, Hero Moto Corp, Tata Motors, Eicher Motors, on auto sector whereas Minda Industries &Ramkrishna Forging on auto-ancillary sector.

Consumer Durables
Consumer durables are also one of the sectors which will benefit from the GST. The implementation of GST will essentially benefit companies, which have not availed tax exemptions in the past. It will lead to the reduction of the price gap between the organized and unorganized sector. The warehouse/logistics costs across the operational and non-operational segments will be curtailed.This will improve the operational profitability by almost 300-400 bps.

We recommend BUY on Voltas, Blue Star, Havells, Bajaj Electrical and Whirlpool from the sector.

Cement sector
The cement sector is also likely to benefit from the GST bill. The tax rate for the cement sector is expected to decline to 18-20% under the GST regime. This is expected to lead to savings in the transportation cost, which currently comprises up to 20-25% of total revenue. The impact of GST will be positive, as the companies will also be able to save on their logistic costs, due to rationalisation of warehouses and lower transportation costs (due to decline transit time)

We recommend BUY on Ambuja Cement, Ultratech, JK Lakshmi, Shree Cement &Ramco Cement.

Logistics Sector
The implementation of GST will lead to lower transit time and thereby generate higher truck utilisation. This will boost demand for high tonnage trucks and lead to overall reduction in transportation costs. It will facilitate seamless inter-state flow of goods, which is expected to directly accelerate demand for logistics services. The logistics sector is largely fragmented and comprises many unorganized players. Several players in the unorganised sector avoid tax which generates a cost gap between them and the organized players With the GST coming into picture, we expect an overall positive impact, with a reduction in the cost competitiveness as all the players will be brought under a uniform tax base, thereby improving growth opportunities for the organized players.

We recommend BUY on VRL Logistics, GATI, Blue Dart, Transport Corporation of India, Snowman Logistics.

Entertainment Sector
This category attracts different taxes such as service tax, entertainment tax and VAT among others. Currently, the effective tax ranges between 22-24 per cent. However, with GST in place, iis expected GST tax rate will trickle down to 18-20%. Reduction in taxes will lead to an increase in average ticket price (ATP) and higher revenue.

We recommend BUY on PVR &Inox Leisure.

Constitutional Amendment Bill gets RajyaSabha nod; GST Bill to be tabled in winter session

The Upper House of Parliament passed the Constitutional Amendment Bill yesterday, allowing both the center and the states to comprehensively levy indirect taxes on all transactions across the value chain. This paves the way for one of India’s biggest indirect tax reforms since independence.

* The Constitutional Amendment Bill would now need ratification from at least half of the states. After that, the GST Bill (model laws for GST – CGST, IGST and SGST) has to be passed by their respective legislatures. The GST Bill is expected to be tabled in Parliament in the winter session.

* All opposition parties have, however, insisted that the GST Bill should be introduced as a Finance Bill and not a Money Bill since RajyaSabha has a minimal role to play under money bills (refer annexure A for understanding the difference between the two).

GST: Game changer for the economy in the long run

GST holds the potential to boost economic activity substantially, improve the government’s revenue, and help achieve better transmission of prices.

* It would enable more seamless and efficient crediting of taxes paid on capital goods, which would then become 12-14% cheaper, increasing demand for them, raising investment, and hence, economic growth.

* Assuming that GST rate aligns with the revenue neutral rate, as is intended, the effective tax rate would decline. This would broadly offset the increase in tax base resulting from a shorter exemption list. Also, most high-taxed items would be excluded from GST, at least initially.

* However, as GST would help reduce tax evasion, prune the exemption list and improve compliance, tax receipts would increase over time. Further, as GST addresses the current concerns of tax cascading and provides an efficient system of providing input credits, it would ensure efficient transmission of prices to consumers.

* As far as the impact of GST on inflation is concerned, a moderate GST rate would help reduce the wholesale price index (WPI), while the impact on consumer price index (CPI) would be limited. However, since services constitute a larger share in the consumption basket than in CPI, Indian consumers are likely to feel the pinch of higher prices of services after GST is implemented.

India Inc to be big beneficiary

We believe that four key themes would emerge, which might have a significant impact on India Inc: (a) change in effective tax rates for various products and services, (b) availability of seamless input credit across the value chain, (c) shift of trade from currently unorganized segments to organized segments, and (d) rejig in supply chain management.

* Sectors/companies likely to emerge as gainers: (a) Consumer – Pidilite, Asian Paints, Century Plyboards; (b) Autos – Hero Honda, Maruti Suzuki, Amara Raja Batteries, Exide Industries; (c) Cement – ACC; (d) Multiplexes – PVR, Inox; (d) Light Electricals – Havells, Crompton Consumer, Symphony, V-Guard; (e) Media – Dish TV; (f) Retail – Shoppers Stop; and (g) Logistics – TCI and Gati.

* Sectors/companies likely to lose: (a) FMCG – ITC, Titan; (b) Media – Print companies: HMVL, DB Corp, JagranPrakashan, HT Media; and (c) Automobiles – Ashok Leyland.


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