In one of its biggest indirect tax
reforms, India implemented the Goods and Services Tax
(GST) with effect from July 1, 2017. But what will be its impact on key sectors of the economy?
In in the long run, GST
is expected to simplify and rationalise taxes, shift trade from the unorganised to the organised segment, and improve efficiency in the system.
is likely to keep effective tax rates intact for most sectors. However, this would have a material implication for those companies that have the pricing power to absorb the change in rate and not pass on the burden to consumers, or those that will see an impact of an increase / decrease in tax and consumer pricing would impact volume growth and corporate earnings.
A research report by Motilal Oswal focuses on the impact of GST on key sectors and here are the highlights of the report
The impact of GST
on companies dealing with paints, biscuits and cigarettes remains neutral as the duty incidence is broadly maintained at current tax rate and therefore there is no major impact. Also, the impact of GST
on toothpaste, adhesive and soaps companies remains positive and the reduction in duty rates may be passed on to generate volume benefits or may be partially retained by the companies to improve margins.
The impact of GST
on auto sector
largely remains neutral and the bifurcation of duty rates based on cubic capacity (cc), engine variant, length and ground clearance of vehicles simplifies the tax structure even further. The entry-level two-wheelers and small sub-4 meter manufacturers could derive some volume benefit on reduction in tax rate under GST
by 2-3per cent.
Information technology and Telecom
While the IT sector see the rise in duty rates by 3%, the same would be offset by availability of input tax credit and therefore the sector remains neutrally impacted because of the GST.
The competitive intensity in telecom sector remains all time high and therefore the rise in duty rates by 3% under GST
would be absorbed by the companies.
is one of the key sectors that would be impacted negatively under the GST.
The rise of tax rates from 0 per cent in current tax rates slab to 5 per cent on 2/3 of revenue, cushioned by input tax available on half of costs under GST
affects the print media