GST - WINNERS & LOSERS
4 THEMES - CHANGE IN TAX RATE FOR CONSUMER, SHIFT TO ORGANIZED, INPUT CREDITS, EFFICIENT SCM
Goods and Services Tax (GST), India’s biggest tax reform, is at the cusp of its legislative birth. While we have summarized below notable sector/company insights from the report, on the macro front, we expect GST to have a neutral impact on government revenues initially (but should be accretive over time), while the reported CPI is likely to remain stable. However, consumers may feel the pinch due to rising taxation on services.
Benefits or adverse impacts of GST can be broadly classified into four themes: change in effective tax rate, shift from trade from unorganized to organized, availability of input credits, and efficiency in the supply chain.
SECTORS/COMPANIES LIKELY TO EMERGE AS GAINERS
(a) Consumer – Pidilite; Asian Paints; Century Plyboards
(b) Autos – Hero MotoCorp; Maruti Suzuki; Amara Raja Batteries; Exide Industries
(c) Cement – ACC
(d) Multiplexes – PVR; Inox
(e) Light Electrical – Havells; Crompton Consumer; Symphony; V-Guard
(f) Media – Dish TV
(g) Retail – Shoppers Stop
(h) Logistics – TCI and Gati
SECTORS/COMPANIES LIKELY TO LOSE
(a) FMCG – ITC; Titan
(b) Media: Print companies – HMVL; DB Corp; Jagran Prakashan; HT Media
(c) Automobiles – Ashok Leyland
THEME#1 CHANGE IN CONSUMER LEVEL EFFECTIVE TAX RATE
The final effective tax paid by the consumer will change due to the application of uniform tax rates, reducing product-level exemptions, and removing the cascading effect. Though the tax will be brought down for most sectors, this would have a material implication only for those companies (a) that have the pricing power to retain the decrease or do not have the pricing power to pass on the increase in effective tax rates, or (b) where an increase/decrease in consumer pricing would impact volume growth, and hence, corporate earnings.
THEME#2 SHIFT FROM UNORGANIZED TO ORGANIZED
GST implementation is expected to narrow the large indirect tax differential between organized and unorganized players by reducing the threshold for exemption, tracking input credit across the value chain, providing input credits, and reducing overall tax rates. Key sectors to benefit: Significant unorganized markets exist in the B2C sectors.
THEME#3 AVAILABILITY OF INPUT CREDITS
Under the current regime, the taxes levied by different levels of government/different states are not allowed to be set off against each other. This would particularly benefit retailers and multiplexes that operate through leased stores and pay significant indirect taxes (service tax) on lease rentals. The GST regime would allow these indirect taxes to be set off.
THEME#4 EFFICIENCY IN SUPPLY CHAIN MANAGEMENT
Currently, decision-making in supply chain management is based not only on business requirements but also on tax planning. The current legal framework exempts CST if interstate movement of goods is for stock transfer and not for sale. Under GST, since CST is subsumed, supply chain management would become a pure play of business requirements. In several sectors, we expect consolidation of the current supply chain, leading to a reduction in operational costs on the one hand and lower inventory carrying costs on the other.
4 THEMES - CHANGE IN TAX RATE FOR CONSUMER, SHIFT TO ORGANIZED, INPUT CREDITS, EFFICIENT SCM
Goods and Services Tax (GST), India’s biggest tax reform, is at the cusp of its legislative birth. While we have summarized below notable sector/company insights from the report, on the macro front, we expect GST to have a neutral impact on government revenues initially (but should be accretive over time), while the reported CPI is likely to remain stable. However, consumers may feel the pinch due to rising taxation on services.
Benefits or adverse impacts of GST can be broadly classified into four themes: change in effective tax rate, shift from trade from unorganized to organized, availability of input credits, and efficiency in the supply chain.
SECTORS/COMPANIES LIKELY TO EMERGE AS GAINERS
(a) Consumer – Pidilite; Asian Paints; Century Plyboards
(b) Autos – Hero MotoCorp; Maruti Suzuki; Amara Raja Batteries; Exide Industries
(c) Cement – ACC
(d) Multiplexes – PVR; Inox
(e) Light Electrical – Havells; Crompton Consumer; Symphony; V-Guard
(f) Media – Dish TV
(g) Retail – Shoppers Stop
(h) Logistics – TCI and Gati
SECTORS/COMPANIES LIKELY TO LOSE
(a) FMCG – ITC; Titan
(b) Media: Print companies – HMVL; DB Corp; Jagran Prakashan; HT Media
(c) Automobiles – Ashok Leyland
THEME#1 CHANGE IN CONSUMER LEVEL EFFECTIVE TAX RATE
The final effective tax paid by the consumer will change due to the application of uniform tax rates, reducing product-level exemptions, and removing the cascading effect. Though the tax will be brought down for most sectors, this would have a material implication only for those companies (a) that have the pricing power to retain the decrease or do not have the pricing power to pass on the increase in effective tax rates, or (b) where an increase/decrease in consumer pricing would impact volume growth, and hence, corporate earnings.
THEME#2 SHIFT FROM UNORGANIZED TO ORGANIZED
GST implementation is expected to narrow the large indirect tax differential between organized and unorganized players by reducing the threshold for exemption, tracking input credit across the value chain, providing input credits, and reducing overall tax rates. Key sectors to benefit: Significant unorganized markets exist in the B2C sectors.
THEME#3 AVAILABILITY OF INPUT CREDITS
Under the current regime, the taxes levied by different levels of government/different states are not allowed to be set off against each other. This would particularly benefit retailers and multiplexes that operate through leased stores and pay significant indirect taxes (service tax) on lease rentals. The GST regime would allow these indirect taxes to be set off.
THEME#4 EFFICIENCY IN SUPPLY CHAIN MANAGEMENT
Currently, decision-making in supply chain management is based not only on business requirements but also on tax planning. The current legal framework exempts CST if interstate movement of goods is for stock transfer and not for sale. Under GST, since CST is subsumed, supply chain management would become a pure play of business requirements. In several sectors, we expect consolidation of the current supply chain, leading to a reduction in operational costs on the one hand and lower inventory carrying costs on the other.