From July 1, cement bags will be taxed at the highest rate of 28 per cent. However, effective taxes currently are already at about the same rate — 12.5 per cent in the form of excise and 13.5 per cent in the form of VAT. In addition, there is service tax paid on transport services.

While the duty implication largely remains unchanged, the upside is the expected tax offset on inputs purchases as well as on service tax paid on its freight.

Many cement companies have set up state-level warehouses to avoid paying Central Sales Tax (CST) on inter-State sales. This has led to logistic inefficiency. Now, with CST getting subsumed under GST, its likely that cement players will go for fewer and larger warehouses. That has potential to lower logistic costs. Freight costs constitute a big portion of expenses — about 25 per cent of sales of cement manufacturers. On this front, it’s likely that national players with diversified geographical footprint such as Ultratech Cement, ACC Cement or Ambuja Cement benefit more than local players.

Moreover, taxes on the key raw material — coal — have been reduced to 5 per cent from about 11 per cent. These lower taxes will most likely reduce input costs for cement manufacturers. However, many manufacturers such as Ultratech Cement and Ramco Industries have substituted coal with petcoke, given its lower prices. Ultratech currently has a fuel mix of 70:30 in favour of coal, while it is about the same for Ramco Industries.

Net-net, most cement companies are likely to benefit from the GST. As a safeguard measure, investors can pick national or regional leaders who have pricing power and will be able to pass on any additional costs to their consumers.

The overall effect of GST will be neutral on real estate. In this sector, service tax and VAT applicable in various States will get subsumed into the GST, while stamp duty and registration charges will not be. And the new tax rate of 12 per cent, at first glance, might seem higher than the 5-6 per cent currently levied as services tax and VAT.

However, the developers also pay other indirect taxes such as excise duty, central sales tax and octroi. Under GST, they will be able to claim input tax credit, bringing the effective tax rates equivalent to that of the pre-GST rates of 5-6 per cent.

However, some input costs might go up. Ceramic tiles and sanitary ware, for instance, will get charged at the highest rates of 28 per cent. Investors are better off sticking to bigger realty players such as Godrej Properties and Mahindra Lifestyle, who are in a better position to absorb new market realities.