India : Winners and losers from passage of landmark GST reform
Thu Aug 04 2016
Ramesh Sridharan (876 articles)

India : Winners and losers from passage of landmark GST reform

Rajya Sabha backed a major tax reform on Wednesday that seeks to transform the country into a common market, though opposition benches urged Finance Minister Arun Jaitley not to overtax businesses and consumers.

A government-appointed panel has suggested a standard goods and services tax (GST) rate of 17-18 percent but Indian states want a higher level.

Below is a look at the macro implications of GST, and some insight on the sectors and companies that will be the likely winners and losers from the reform.


  • GST will harmonize 11 state and central levies into a national sales tax, reducing business transaction costs.
  • It will subsume some major central and state government levies such as duties on excise, additional duties of customs, service tax, value added tax, central sales tax, entry tax, octroi and luxury tax.
  • Typically, these taxes in aggregate constitute around 25 percent to 40 percent of the price of products with certain categories being taxed at lower rates.
  • Economists project an increase of 0.4-0.8 percentage points in India’s economic growth within three to five years of GST rollout.


  • The real estate sector is expected to benefit from lowered construction and procurement costs and funding, which may help developers secure higher margins.
  • The direct impact in terms of tax outflow for developers and consumers will depend on whether the final GST rate is more or less than the taxes paid currently. The current rate of indirect taxes is over 25 percent, developer Tata Housing said.
  • GST will boost development of warehouses and result in the emergence of new logistics hubs, which will benefit industrial developers such as privately held Indospace and Embassy.
  • One thorny issue would be stamp duties – taxes placed on legal documents around the transfer of property – as the bill seeks to keep those out of the final structure. The bill also does not offer clarity on land valuation guidelines, according to privately held developer Hiranandani.


  • The sector is likely to benefit from reduced levies, and narrower pricing gap between unorganized and organized players.
  • The tax reform may lead to the development of new or expanded logistics hubs, driven by commercial and economic efficiency, rather than regulatory considerations, analysts said.


  • GST may bring down transaction cost for retail businesses thus helping reduce prices. Analysts expect a strengthening of supply-chain management to bring about lower inflation, which would be crucial for policymakers, given the new inflation targeting framework that India adopted last year.


  • Input costs are likely to be reduced after GST, and car manufacturers may expand to more states because of uniformity in taxation. Excise duties, which are priced into the final cost of vehicles, are expected to go. Likely beneficiaries are companies such as Hero MotoCorp Ltd, Maruti Suzuki, Amara Raja Batteries and Exide Industries.


  • Taxes are expected to fall to 18 percent under GST from the current 23-25 percent, helping cement makers save more. Part of the cost savings could be passed on to consumers but still will potentially help earnings of cement companies such as UltraTech, ACC and Ambuja.
  • Ratings agency ICRA Ltd said paint and adhesive companies are likely to benefit substantially.


  • The light electricals’ sector might be benefitted as effective indirect taxes are expected to fall to around 18 percent from 29-30 percent. Havells, V-Guard, Bajaj Electricals are likely to benefit, analysts say.


  • Service tax rates will go up to 18 percent from 15 percent, which brokerage Motilal Oswal says will be “mildly negative”. Carriers including Bharti Airtel, Vodafone India and Idea Cellular may have to take a hit on margins in the short-term as they will not be able to fully pass on the tax increase to pre-paid customers, who dominate their subscriber base.


  • GST is seen having a mixed impact on the sector. Negative for broadcasters as service tax is likely go up to 18 percent from current 15 percent, but satellite TV and cable operators gain as a state-levied entertainment tax gets subsumed. Cinema operator PVR, pay TV company Dish TV are likely gainers, brokerage Edelweiss says.


  • GST will enable pharma companies to rationalize their distribution networks through consolidation of depots/warehouses and better inventory management, Motilal Oswal says, expecting most pharma products to be taxed at a concessional rate of 12 percent. Pharma companies will have the pricing power to pass on any increase in taxes, the brokerage says.


  • India’s more-than-$ 150-billion software services sector derives three quarters of its revenue from exports, which are exempted from service tax. Any increase in service tax under GST will affect the companies’ domestic business, which accounts for a small proportion of business for large IT players.
Ramesh Sridharan

Ramesh Sridharan

Ramesh Sridharan is our Stock Market Correspondent covering events and daily movements of stock markets in Asia. He is based in Mumbai


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