GST Update - A Big Bang Economic Reform; Turning into Reality is Awaited - Reliance Securities

Goods & Services Tax (GST) - a form of singular indirect tax on supply of goods and services from the manufacturers to the consumers - aims at making the whole nation one unified common market. Credits of input taxes paid at each stage will be available at subsequent stages of value addition, which makes GST essentially a tax only on value addition at every stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. The GST will replace central and state levies including Excise Duty, Service Tax and Value Added Tax (VAT), while several other taxes would be uniform across the nation.

Positive Impact

* Credit Positive - To ensure more FDI inflows
* Growth - To aid GDP growth by 1-2%
* Manufacturing - To boost to the sector by achieving economies of scale
* Taxation - To expand Tax Base & Tax Credits and reduce tax evasion ensuring higher receipts
* Consumers - To benefit consumers with single taxation policy

Negative Impact:

* Inflationary - Though CPI-based inflation is expected to shoot up in the short-term, it may cool down as more than 50% of CPI basket will be exempted from GST.
* Service Sector - Service Sector would witness slowdown in growth as the current Service Tax rate will increase from 15% to 18%.

Awaiting Reforms to Turn into Reality

* The GST - 122nd Constitution Amendment - Bill was passed in the Rajya Sabha (Upper House of Parliament) on August 03, 2016.

* Now, the Bill will be sent for presidential reference following which the President will refer it to the state assemblies.

* At least half the state assemblies (i.e. 15) will need to ratify the Bill by a two-third majority.

* The Parliament will take up the actual GST Bill with rates which is likely to be in the Winter Session of Parliament.

* All these procedures need to be completed ahead of the Centre's planned roll-out for the bill on April 1, 2017.

Source : Equity Bulls

Keywords