5 Sectors That Will Benefit From India’s Proposed Tax OverhaulIndia’s upper house of Parliament on Wednesday approved an overhaul of the country’s tax system that, if passed in the lower house, will lead to the implementation of a nationwide goods-and-services tax, or GST.
Here are five sectors that stand to gain.
1 Automobiles
The GST will make cars more affordable in India as it will reduce the taxes levied on the vehicles.India currently has four factory-gate tax rates of 12%, 24%, 27% and 30%, depending on the vehicle’s specifications. On top of that, there are value-added taxes, which range from 12.5% to 14.5%.
The GST will subsume all theses levies into one and passenger vehicles will likely fall into one of two tax bands: 18% to 20% for regular cars, and up to 40% for luxury autos.
2 Logistics
Haulage and logistics companies will be able to reduce transit hours because the simplified system will mean that their drivers won’t have to wait for so long at borders to pay levies.
Currently, some companies use smaller transporters that charge lower fees because they are able to avoid paying taxes due to the inefficient system. But a more transparent tax system will mean the smaller companies are more likely to pay, leveling the field for larger players.
India’s leading 10 listed logistics companies command less than 5% of the overall market, according to a KPMG report. Stocks of some companies such as AllCargo Logistics Ltd. and Transport Corp of India Ltd. have gained more than 15% in the past month in anticipation of the passage of the GST legislation.
3 Media and entertainment
Cinema multiplex operators now pay entertainment taxes as well as several other levies to federal and state governments. The entertainment tax can be as high as 27% and operators must pay that as well as a service tax of about 15% on advertising revenue.
GST is expected to cut that tax bill, lowering operational costs and boosting margins.
Motilal Oswal Securities says that a GST rate of 18% may improve operating profit of PVR, the largest listed multiplex operator, by as much as 26%.
4 Retail
Consumers’ disposable income is expected to rise in the medium term if the GST rate turns out to be lower than current levies, boosting demand.
A more efficient tax system will also mean that market-stall owners and roadside vendors are more likely to pay tax, analysts say. That will create a more level playing field for larger shops and retailers who already pay.
The retail sector will likely also benefit from lower logistics costs as well as a fall in rental costs. Retailers currently shell out about 10%-15% of their operating expenditure on rent and infrastructure services, on which service tax is levied. But that levy would be reduced post-GST, benefiting retail companies like Future Enterprises Ltd. and Shoppers Stop Ltd.
5 Cement
Overall tax for the cement sector will likely to come down if the GST rate is set at 18%, Kotak Securities says.
After the implementation of the uniform tax, cement companies would likely pay about 920 rupees ($13.78) in tax per ton, down from about 1,320 rupees currently, the broker says. It also expects cement firms to benefit from a more efficient logistics system. This will cut costs for consumers and also help the government achieve its aim to provide housing for all by 2022.
Source: 5 Sectors That Will Benefit From India’s Proposed Tax Overhaul – WSJ
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