ONENATION, ONE TAX. Leg-up from GST

With the GST Bill passed by the Rajya Sabha, the ‘one nation, one tax’ regime has come much closer to reality than ever before. Once the GST regime kicks in, several sectors are expected to benefit and and hence stocks in these segments will see continued interest.

Thumbs-up for logistics GST will result in reduction in transit time for goods transportation and give a boost to the entire supply chain through creation of large warehouses in strategic locations.

Among the listed players in the logistics space, Transport Corporation of India, Container Corporation of India,GATI, Gateway Distriparks and VRL logistics are all at an advantage. In the pharma space, most companies now operate through a cost and freight mechanism with depots in many States. Under GST, they can consolidate existing storage infrastructure to manage inventory better, leading to lower costs. Reduced logistic costs are expected to favourably impact margins in sectors such as auto and FMCG as well.

End to anomalies Multiplexes will now be able to claim credit for service tax paid on a host of services used by them, such as property rent, housekeeping and security. Today, credit for tax paid on input services can be adjusted only against the service tax paid (on output). But, multiplex operators are unable to get this benefit since they pay entertainment tax and VAT (and not service tax) on a chunk of their revenue. Companies such as Inox Lesiure expect this change to positively impact their operating profits by 300-400 basis points.

Many pharmaceutical companies are dealing with an inverted duty structure where excise duty on raw materials (input) is 12.5 per cent while that on finished dosage (output) 6 per cent, leading to accumulation of tax credits. GST will solve this anomaly.

A GST regime will reduce the price differential between products of organised players and their competitors in the unorganised space. This will be advantageous for listed companies which have big competition from the unorgansied segment such as Kajaria Ceramics, Somany Ceramics, Cera Sanitaryware, Greenply, Exide and Amara Raja Batteries.

Cheaper cars The rolling out of GST is expected to make cars cheaper. Excise on cars and utility vehicles (UVs) currently varies from 12.5 per cent to 30 per cent.Together with the Central Sales Tax, the National Calamity Contingency Duty, VAT and the newly introduced infrastructure cess in this year’s Budget, the total indirect tax incidence goes even up to 50 per cent for some vehicles.

Assuming the standard rate could hover around the proposed 18 per cent and luxury cars/UVs are taxed at the proposed 40 per cent, this would result in neat savings for buyers. Listed companies such as Maruti Suzuki and Mahindra and Mahindra will benefit from increased demand.