The government panel report on Goods and Services Tax (GST) and the recommended rates if implemented will make services more expensive under GST while most manufactured goods will become cheaper, say leading brokerages. A report by Kotak Institutional Equities says with services tax rate at 18 per cent under GST (currently at 14.5 per cent ), it will likely increase consumer price inflation (CPI) inflation by 60-70 basis points. But for goods, the standard GST rate at 18 per cent (Centre and states) is lower than the excise plus VAT rates, which are approximately at 12 per cent and 12.5 per cent respectively, it says. The note adds that the overall impact on inflation may be marginal given that most goods will be under the ambit of exemption and lower rates, which will offset the services component to some extent.
On the other hand, the GST regime is unlikely to have any significant impact on growth and tax revenues in the near term. The impact will be visible only over 1-3 years as companies benefit from efficiency gains through a unified national market and increase in tax compliance, it adds.
An analysis by JM Financial suggests sectors such as consumer staples, paints, consumer appliances, autos, cement, pharma and media will benefit from the proposed GST while telecom might be negatively impacted.
The big advantage can be a saving in freight costs by 15-17 per cent. The report adds in other countries where GST has been implemented, inflation rises in the near term though long term effects are deflationary. On whether the GST will be inflationary, the report says under the standard rate of 17-18 per cent, services will likely become more expensive.
Similarly, end consumer price levels may rise for clothing, footwear, tobacco products, processed food and others that were earlier charged lower rates. As a result, in the interim, consumer inflation may rise and decline over 3-5 years as efficiency gains and lower cascading of taxes kick in.
The report by JM Financial adds sectors such as consumer staples may benefit due to lower rate and higher credit against tax paid on inputs and media spends. Cement will also benefit owing to lower rate and streamlining of supply chain while autos and auto ancillary will gain due to streamlining of supply chain, move towards organized sector and increase in export competitiveness. But sectors such as telecom are likely to lose out because of high tax rates under GST, the report adds.
SOURCE: THE TRIBUNE
On the other hand, the GST regime is unlikely to have any significant impact on growth and tax revenues in the near term. The impact will be visible only over 1-3 years as companies benefit from efficiency gains through a unified national market and increase in tax compliance, it adds.
An analysis by JM Financial suggests sectors such as consumer staples, paints, consumer appliances, autos, cement, pharma and media will benefit from the proposed GST while telecom might be negatively impacted.
The big advantage can be a saving in freight costs by 15-17 per cent. The report adds in other countries where GST has been implemented, inflation rises in the near term though long term effects are deflationary. On whether the GST will be inflationary, the report says under the standard rate of 17-18 per cent, services will likely become more expensive.
Similarly, end consumer price levels may rise for clothing, footwear, tobacco products, processed food and others that were earlier charged lower rates. As a result, in the interim, consumer inflation may rise and decline over 3-5 years as efficiency gains and lower cascading of taxes kick in.
The report by JM Financial adds sectors such as consumer staples may benefit due to lower rate and higher credit against tax paid on inputs and media spends. Cement will also benefit owing to lower rate and streamlining of supply chain while autos and auto ancillary will gain due to streamlining of supply chain, move towards organized sector and increase in export competitiveness. But sectors such as telecom are likely to lose out because of high tax rates under GST, the report adds.
SOURCE: THE TRIBUNE
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