GST A Boon or Bane For Manufacturing & Services Sector of India
- FMCG: Companies could generate substantial savings in logistics and distribution costs as the need for multiple sales depots will be eliminated. GST will be positive for household and personal care space as the effective tax rate reduces by 200-500 basis points. Warehouse rationalization and reduction of overall tax rates, is expected to generate savings which could cumulatively range between 200-300 bps. However, if the recommended 40% ‘sin/demerit’ GST for aerated beverages and tobacco products is levied, prices may increase by over 20%. Also, food companies may see increase in effective rate as many companies enjoy concessional rate of excise.
- Wind Power: GST will be negative for wind, turbine generator manufactures like Suzlon, as pressure on developer margins and internal rates of return could eventually force reduction in prices and realisations, upto 10-13%. However, if components are included in exemption list, the impact of GST will be nullified.
- Pharmaceuticals: GST rollout could be negative for the sector, as it is likely to increase indirect tax as taxes paid by pharma companies could increase by 60% and MRP by 40%.
- E-Commerce: GST will help create a single unified market across India and allow free movement and supply of goods in every part of country. It will also eliminate the cascading effect of taxes on customers which will bring efficiency in product costs. However, TCS guidelines will increase administration, documentation workload for ecommerce firms and push up costs.
- Media: DTH, Film producers and multiplex players are levied service tax as well as entertainment tax, GST will bring major change and uniformity in businesses which will bring down taxes by 2-4%. Multiplex chains will save on revenues as there will be a more uniform tax, unlike current high rate of entertainment tax levied by different states. It may lower the average ticket price, and increase the footfalls in multiplexes. GST will be a big boon to film producers and studios that currently pay service tax on most of their cost, but cannot charge input credit on creative services as they fall under the negative list. Under GST, they will be able to claim credit of these services also, which will help in lowering overall cost.
- Aviation: Flight tickets will become expensive as currently service tax on fares range between 6% (on economy class) and 9% (business class), however, the GST rate will surpass 15%, if not 18%, effectively doubling the tax rate. Also, airlines will not be able to claim credit on tax paid on jet fuel as petroleum products are outside purview of GST.
- Cement: Overall tax incidence could decline if GST rates are fixed at 18-20% from the current effective rate of 25%. It will also benefit from expected decline in logistics cost which currently comprises upto 20-25% of total revenue. This one common market will bring down number of depots to 100 from the present 550 in the country.
- Automobiles: GST will be largely positive for demand, as it will lead to a 10-17% fall in prices, assuming an 18% GST rate. Margin benefits to accrue for tractors, as these can claim set-off against taxes on input. And organized battery and other spares would become cost competitive and gain market share. 9 Insurance: Life, health and motor insurance policies will begin to cost more from April 2017 as taxes will go up by upto 300 basis points.
- Consumer Durables: Consumer durables will benefit from improved logistics in terms of cost savings of upto 200-300 bps. A significant portion of direct benefits will be passed on to end consumers because of a highly competitive market.
- Telecom: Handset prices are likely to come down/even out across states. Manufacturers are also likely to pass on consumers cost benefits they will get from consolidating their warehouses and efficiently managing inventory. GST will bring in ease of doing business for them as they may no longer need to setup state specific entities and transfer Recommended Articles
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