GST: Who will be the top gainers?

Currently there is a lot of buzz regarding the much awaited GST tax reform which is going to subsume all the taxes which is currently cascading (tax on tax). It is said that there will be increase of 1.5-2 percentage points increase in GDP growth. It is necessary to know which sector would contribute the most to the GDP in the coming years. It will also help us earn handsome money in the stock market. Firstly, the implementation of the GST is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players forming part of sectors having a high proportion of the unorganized segment.

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Logistics Sector: The impact of GST on this is stupendous. Currently when a truck passes a state border it has to give entry tax, more than that there is scrutiny of the truck which takes away a lot of time. According to a report, the total idle time of trucks is around 60% primarily because of state border check post. With the implementation of GST the productivity of these companies will improve plus there will be no entry tax. The positive impact of GST on this sector can be seen by stock prices of companies from March 2016 till date (August)

  1. Gati’s share price has increased by 67% since March due to the Euphoria of GST (from 110 to 180)
  2. Snowman Logistics’ share price has increased by 50% since March (from 59 to 89)

FMCG Sector: It is a huge sector and annually it pays USD 6.5 Bn both in indirect and direct taxes. FMCG companies setup warehouses in every state for efficient tax system. They do so because they do not have to pay Central Sales Tax (CST) for inter-state trade. But due to this reason their distribution and warehouse cost increases. If GST comes into force they will setup an efficient warehousing and distribution channel thus saving costs and improving productivity.

Automobile Sector: It will be a boon primarily because of removal of cascading effect (tax on tax). The second efficiency could also be on the input side, a more easy credit mechanism so that all the taxes on the input side, whether it is input services, whether it is capital goods, whether it is manufactured products, are set off against the output liability of GST. Hero Motocorp is up 25% since March and M&M is up 20%. Small car prices will be down by up to 15% with GST.

Other sectors which will gain are Cement, infrastructure, hospitality and industrial manufacturing.

Authored By:

Hiten Poshattiwar

SIBM-Pune

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