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BW Businessworld

GST To Boost GDP By Two Per Cent

Automobile, hospitality and real estate are among major sectors that will benefit from the goods and services tax

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GST (Goods and Service Tax) is a consumption based tax wherein the basic principle is to tax the value addition at the each business stage. To achieve this, tax paid on purchases is allowed as a credit against liability on income. GST is levied on all transaction of goods and services. Thus, in principle, GST should not differentiate between goods and services.

Here are some sectors that will benefit the most from GST bill:

Automobile sector is the one that will benefit the most from it. Dividing the cars into segments, an approx 27% is levied on small cars, 39% on mid-cars, 42% on luxury cars and 45% on SUVs. If the GST comes into effect for a maximum rate of 20%, it will benefit all the segments of the car industry. GST would accommodate all the excise duty, sales tax, road and registration tax into one. This would benefit the car manufacturers and investors can look upon Maruti for better returns.

Hospitality is the next sector that will make the most out of it. Hotels pay a service tax of 8.7% along with luxury tax of approx 10-12%. Restaurants pay a service tax close to 6% and VAT at around 14.5%. The consumers will heave a sigh of relief if GST comes in around at 18%. This will relieve customers of the heavy tax imposed on them for food and services. ITC can give good 5-10% returns after GST benefitting from their hotels and cigarette brands.

Media pays a heavy tax on its revenues. DTH service providers pay a 22% tax on its revenue and 4% as Special Additional Duty. GST will curb the 26% tax and improve operating margins for DTH providers. Cinema companies also pay a 22% tax including entertainment tax and an additional 7-8% on food and beverages sale. GST implication at 18% will increase their income before tax. PVR and Dish TV look optimistic and are stocks to look out for.

Real estate is a major sector that is likely to benefit with the implication of GST. The developers will get cheaper building materials thus reducing the cost of development. The developers currently pay excise duty, custom duty, entry tax and CST (Central Sales Tax).

The buyers also pay service tax and VAT at the time of purchasing units. A single tax will bring down property rates down, making house affordability easier. HDFC, Indiabulls Housing Finance and HDIL are the stocks to watch out for good returns in short term.

Textile industry especially apparels will become cheaper with the implication of GST.

VAT, import duty and sales tax make it 26% on the product. If the GST comes in at around 18%, it will make apparels much cheaper. Centre and state tax will merge into one, benefitting one of the most important consumer based industry. Arvind Mills can be looked upon for better returns.

GST will reduce business restrictions and improve the free flow of trade.


Tags assigned to this article:
goods and services tax taxation gross domestic product