What Brokerages Made Of The Big GST Rate Changes
(Source: Bloomberg)

What Brokerages Made Of The Big GST Rate Changes

The Goods and Services Tax Council cut rates on 211 items spread across all tax brackets, including three-quarters of 227 products originally taxed at the highest 28 percent tax bracket.

Products in the fast-moving consumer goods, building materials and electrical items emerged as major beneficiaries from the rate cut. The Council also said that all standalone restaurants will be taxed at 5 percent GST levied, but shall not receive any input credits. The changes will come into effect from Nov. 15.

Here's what brokerage houses made of the revisions:

Fiscally Negative, Says CLSA

The GST Council’s rate decision is “fiscally negative” and reflects the government’s populist turn ahead of the national elections in 2019, CLSA said in a report. “The move would likely cost 12 basis points of revenues to the government, which is ultimately the Central government’s liability,” the research and brokerage house added.

  • Revision of items in the top bracket will cut revenue by 12 basis points or Rs 20,000 crore.
  • Government’s tax collections post GST stand short by Rs 6,000 crore per month, as per CLSA’s calculations.
  • Fast-moving consumer goods segment to benefit the most from the move; GSK Consumer Ltd. and Hindustan Unilever Ltd. are the biggest gainers.
  • The decision is a key positive for restaurant chains like Jubilant Foodworks Ltd. and Westlife.

Organised Players Will Benefit, Says Edelweiss

The lower GST rate will disincentivise tax evasion and ultimately expand the country’s tax base, according to Edelweiss. In the short term, though, the cuts will have “adverse fiscal implications”, it said in a report.

  • Lower GST rates will provide a level playing field to tax-compliant organised players
  • Tax-compliant organised sector will gain market share from accelerating pace of demand shift.
  • Key beneficiaries include Kajaria Ceramics Ltd., Havells India Ltd., Titan Ltd., Jubilant Foodworks Ltd., etc.

‘Palatable’ Changes, Says Motilal Oswal

Motilal Oswal said the government’s projected revenue shortfall of Rs 20,000 crore as a result of the lower rates can be offset by increasing demand.

  • Macro revenue picture looks good as monthly tax collections are in excess of Rs 90,000 crore, as per the government.
  • Over a period of time, the government might prune the list of items in the highest tax bracket further.
  • The shortfall of Rs 20,000 crore on revenue can be partially offset by shift of trade to the organised sector and volume growth due to price elasticity of demand.
  • The consumer, light electrical and homebuilding segments will benefit greatly.
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