Will GST Turn Out a Golden Goose or Scapegoat?

With the GST passing all the hurdles in both the houses, let’s now try understanding which sectors in India would benefit and which sectors would be at loss

GST

“Tax.” This that one word which affects the mental health of every common man- the Aam Aadmi. All a person can see is a big hole in his pocket paying the different taxes imposed by both central and state government of our country. This news might let the aam aadmi breathe a sigh of relief; the current tax on the goods that would decrease the tax on the goods we buy. While the common man benefits from the approved GST bill, there are other sectors too for whom the GST is a Golden Goose. Whereas, few areas are not entirely happy with the bill as they would become scapegoats in this whole process.

Let’s try understanding who is to benefit with the new bill and who is to suffer from the approval of the bill.

The Golden Goose

GST is considered a significant reform by analysts as it would boost the process of the economic recovery. Many sectors would profit from GST. Let’s take a look at these!

GST

 Automobiles:

One of the beneficiaries from GST implementation is the auto sector with the clause that the rate is below the total tax incidence for the industry which is greater than 27%. It is expected that GST would lower prices for the end user and thus would increase the demand. Maruti Suzuki India Ltd and Mahindra and Mahindra Ltd are the companies that would gain higher profits. So, if you have put off your plans on buying yourself a new car, then now is the perfect time to buy your dream car.

GST

Multiplexes:

Multiplex companies are the next ones to be rewarded by GST. Presently, they pay around 25% of the average revenue per user (average ticket price + food and beverage spend). It is divided into three broad areas as taxes. These are entertainment tax on net ticket sales, Value-added tax (VAT) on F&B, and service tax on input costs. How would GST help?  Well, GST will reduce the tax burden and improve the Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of all these companies. Get ready to go to a movie since your movies tickets are going to be cheaper now!

GST

FMCG:

GST would be positive for most consumer goods companies if the GST rate is less than or equal to 18%. Most of it depends on currently retained excise benefits. Also, there will be gains from warehouse rationalisation and a better competitive position that is unorganised firms. The profits would not be instantaneous but will occur in a slow process.

Logistics:

The supply chain management is expected to get a boost. Also, the transit time will reduce. Further, interstate trade barriers would dissolve and eventually we would have better interstate commerce. There will also be a consolidation of warehousing facilities.

GST

Cement:

GST is something all the cement factories will look forward to as the fixed 18% GST rate is far lower compared to what the companies are paying now. The researchers expect cement makers to pass on the benefits to consumers as the demand for their product continues to remain weak. We cannot be sure if this GST will alone revive the demand for cement.

Retail:

GST comes good news to all those retailers as the new bill would increase their marginal amount. All the retailers now have an opportunity to set off input tax credit on rent which is expected to aid margin expansion. If you own a retail store, fasten your seat belts and enjoy the profits that will come your way.

Scape Goat

While for many GST is a golden goose there are others who would become scapegoats in this process. GST is expected to impact services related sectors negatively as they may have to shell out more money to pay their taxes than what they are paying currently.

GST

Telecom:

GST is not good news for the telecom sector. The moderate rise in tax outgo could be the hit demand and revenues. Though there would be a set-off of individual taxes, their impact would be negligible. The telcos not just have to deal with this but have other problems too. The Data volumes are slowing, and the Reliance Jio Infocomm Ltd launch will only worsen matters for others.

 

GSTConsumer staples and discretionary:

The existing taxes the consumer staples pay is relatively small. But with the GST coming into enforcement, the companies will have to pay more from their pockets. Hence, GST will be negative for businesses in food processing, bakery, edible oil, dairy segments and personal care items. Quick service restaurants too will be at loss and will be adversely impacted.

While there is unrest among the sectors which would have to shell out more money towards taxes, the analysts are of the opinion that every sector in the country would have an advantage in the long run because of GST. The GDP growth would be around 2% in the next few years. Likewise, the aam aadmi would be the ultimate gainer with this bill as he would have to pay less for the commodities of every day use!