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5 updates on GST you should know
With the recent Rajya Sabha elections, most analysts expect the government to get the key constitutional amendment through the Rajya Sabha, the Upper House of the Parliament. This is because the number of those supporting the bill for the single nationwide tax in the current form goes up.
Here are 5 things to note about the implementation of GST:
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Rajya Sabha approval:
The GST Bill is pending in the Rajya Sabha as the government needs a two-third majority for the constitutional amendment. The GST Bill would need the support of 161 members out of the 241. Those opposing the bill have 71 members after the recent Rajya Sabha elections. The government depends on the vote of the new members from the AIADMK in Tamil Nadu.
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What is the impact:
The purpose of GST is to simplify indirect taxation. It recommends a standard rate of 17-18% for all goods and services. Essential items would be taxed at 12% and luxury items, tobacco products at 40%. The average current standard rate of taxation is about 20-22%, according to a Kotak Securities report. Some items may get expensive for users while some could become cheaper.
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Companies that benefit:
Except luxury cars, all other cars and vehicles would see an impact of low GST. The biggest beneficiaries could be companies that make utility vehicles like small trucks that attract an indirect tax of 40%. Companies in this sector could benefit from the low tax rate. Companies that make consumer durables are other beneficiaries. Current taxation on white goods like TV, refrigerators, air conditioners and others includes 12.5% excise duty on production and a further 12.5% state value added tax on the selling price. All of that will consolidate into a single tax of 17%. Companies operating in markets with significant unorganized competition would also stand to gain on account of lower tax incidence. These are typically companies in Tiles, Building Products, Cables and Consumer electricals.
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Companies impacted:
Many items that we eat at homes fall under zero or very low indirect tax bracket. As most could possibly fall under essential items, they could attract a minimum tax of 12%. This could push up prices of high volume items consumed at homes. However, it is a one-time impact. Also, logistics costs in the FMCG companies could come down as the whole country becomes a single market. “This could also help save significantly on their working capital requirements,” Kotak Securities report said.
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When would it be implemented:
If the Rajya Sabha clears the pending legislation in the monsoon-session of the Parliament, GST could be implemented as early as April 2017. This means the impact will be felt in the financial year 2017-18 on businesses. However, analysts expect the market to start discounting the move much earlier. Hence, share prices could start to move based on the impact on profitability of companies.
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Rs 779000 crore
The central government expects to mop up 5.18% or Rs 7,79,000 crore through indirect taxes in 2016-17. These include central excise duty, customs duty and service tax. Budget estimates of 2017-18 would be revised to incorporate the impact of GST. It is expected to replace all three plus state taxes and octroi levies in major cities.
