Sectors having positive Impact of GST

If you actively trade in the stock markets you would have already seen the decent run up that some of the stocks are having as the positive news on the GST is pouring in. These stocks actually belong to the sectors which are going to benefit with the GST becoming a reality in the near future. With a high probability of the GST bill getting passed in the Rajya Sabha in the current parliamentary session ending on 12th of August, the market is already discounting the news through a hike in the prices of the shares in the beneficiary sectors.

The number of companies and sectors that will gain with the implementation of the GST is likely to be higher than the losers. This will be especially so in the sectors that are dominated by unorganised players, as the GST bill will shrink differential tax rates and increase tax compliance. The prominent sectors that are being talked about as the gainers are realty, automobile, consumer goods, and logistics etc.

Infrastructure: The construction and building materials industry will benefit from the difference between the current effective tax rate and the proposed GST rate. With the excise duty and VAT the cement, ceramics, and even paint companies are paying a tax of 24.5% which is likely to come down to 18% in the GST regime. This sector is having a dual benefit in the form of the infrastructural push by the government and the GST bonanza and is reaping the gains in the form of steadily rising stock prices.

FMCG: Similar GST benefits are seen for the consumer goods and durables industry. The FMCG industry will see the gains coming directly from the GST rate differential in addition to the benefits from the supply chain and logistic front. The consumer companies will welcome the GST rate pegged at 18 per cent levels versus the current tax rate of 22-23 per cent. The consumer durables sector which has a high incidence of logistics costs amounting to around 7.5 per cent of sales will save around 30 per cent of it.

Automobiles: The stocks of two wheelers, cars, SUV, and commercial vehicle manufacturers are buzzing with activity. The gains in the value of these stocks can be understood from the tax differential benefit that is likely with the GST implementation. Whether it is the two-wheelers or the four wheelers they all bear the brunt of high taxation that adds up to 25-26 per cent. The figure is significantly higher at 35 to 45 per cent when it comes to Sports Utility Vehicles (SUVs) and midsized cars.

DTH: It will be a mixed bag for the telecom sector. We pay a tax of 15 per cent on our phone and data card bills which will go up while the DTH players and cable companies that pay 23 to 25 per cent will see a reduction.

Transport: The logistics sector is being seen as a major beneficiary among the bullish sectors. All the companies in the logistics sector will benefit while the larger toll players will have an indirect impact. The traffic movement will be significantly up given the increased profitability of the truckers.

Once the GST bill is passed, further clarity will emerge with the date of implementation of the new indirect tax. As the economy will move towards the GST regime the sectors that come out as clear winners will be distinctly visible.

8 thoughts on “Sectors having positive Impact of GST

  • what will be its impact on domestic steel market ??

    《《《It has been proposed that merchandise Imports coming to India will face GST on destination criteria. Duty levied under GST for Import in services will be based on reverse charge method. Indian has signed several trade agreements under which Imports coming from such partner countries are not liable to pay Import duty but with the implementation of GST they will be subjected to CGST and SGST having a national treatment.》》》

    • The most important aspect is that GST will give a level playing field to the domestic industry, as the same GST rates would apply as in the case of imports. The duty that is levied under GST will be based on the reverse charge method. Despite the fact that India is signatory to agreements with some partner countries who are not liable to pay the import duty, they will be subjected to GST at the national level.

    • Apparently it seems that GST is not beneficial for this sector as credit is restricted. However, it depend upon the Rate of GST for this sector. Further, the provisions of Model Law also create certain ambiguities such as –

      As per Schedule-II, Clause 5 – Following shall be treated as “supply of service”-
      “construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier.”

      Further, as per Section 16(9), input tax credit shall not be available in case:
      •goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery;
      •goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery;

      Hence, two proposition is emerge for taxability of Real Estate Transaction –
      • Before Receipt of Completion Certificate – supply of service (As per above clause)
      • Entire consideration has been received after issuance of completion certificate – ?

      What will be taxability rate and GST Tax Credit mechanism in above two scenario, that needs to be clarified.

      Being the real estate developer, inventory are sold-
      • while developing the project, and
      • sale after completion of construction.

      But the input services/goods are continuously availed for whole project since its inception and it cannot be classified. In such a situation, segregation of Input credit may not be feasible.

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