On July 1, 2017, the Goods and Services Tax (GST) was finally implemented after several years of deliberation. It has eliminated the multiple indirect tax regime and unified the country under a single tax system.
GST is one of the biggest tax reforms our country has witnessed and it has affected most sectors of the economy. Here are six sectors affected by GST and the impact of your investments in companies belonging to these sectors.
- Fast moving consumer goods (FMCG)
Products like toothpaste, hair oil, soaps, and others attracted 22% to 24% tax before GST. This has now reduced to 18% ensuring lower taxes on mass consumption goods. Some products like grains, cereals, and milk are exempt from any tax while items like sugar, edible oil, coffee, and tea attract 5% GST. FMCG is expected to be one of the sectors to benefit from GST and investing in stocks of such companies may deliver higher returns.
- Capital goods and consumer durables
The consumer durables and capital goods sector has seen a mixed effect of the GST rollout. Some segments within the consumer durable goods are now in the 28% GST bracket, which has resulted in price increases. On the other hand, industrial intermediaries and capital goods now levy 18% GST. This is a significant reduction from the previous 28% tax rate.
A larger number of companies are expected to come within the organized sector reducing competition from the unorganized competitors. Therefore, some stocks benefiting from GST include consumer durable companies such as Voltas and Havells.
The highest GST rate of 28% is levied on cars along with an additional cess. Small petrol cars with less than 1200CC engine levy 1% cess while diesel cars of up to 1500CC attract 3% cess. Hybrid cars that also include sports utility vehicles (SUVs) and passenger vehicles with less than the capacity of 13 passengers levy 15% cess.
Automobile manufacturing companies are expected to pass on the increase in cess to the buyers through higher car prices. However, the GST rate along with the additional cess is almost the same as the pre-GST tax rate and is not expected to have any significant impact on the four-wheeler car segment. Two-wheeler manufacturing companies may see some advantages of GST.
- Cinemas and multiplexes
All cinemas, multiplexes, five-star hotels, and casinos attract 28% GST rate. Before the rollout of the single tax regime, state entertainment taxes ranging between 28% and 100% were applicable. However, these are now subsumed and only 28% GST is applicable. Therefore, costs are expected to reduce, which is considered as one of the biggest advantages of GST for the consumers.
- Cement, coal, metal, and steel
Prior to GST, tax incidence on cement was between 24% and 25%. The same increased to 28% GST. However, now the GST on cement-related products is reduced to 18%. The tax incidence on coal is 5%, metal is 12%, and steel products is 18%. Most cement companies will hike the prices mitigating any potential impact on earnings.
Steel and power companies that rely on coal are some sectors to benefit from GST because of the lower tax rate. Some stocks to benefit may be Tata Steel and JSW.
A flat 15% service tax rate was applicable before GST. This is now distributed among the four GST slabs—5%, 12%, 18%, and 28%. Financial services and telecom come under the 18% bracket, increasing prices. However, input tax credit (ITC) is expected to partially neutralize the effect of a higher tax rate.
The airlines may benefit because of the 5% levy on economy class tickets through higher ticket sales giving ‘Udaan’ project a boost. Some stocks benefiting from GST include SpiceJet and InterGlobe Aviation.
The market sentiment is positive after the implementation of GST as it is expected to boost economic growth. Investment sentiment is also positive with more investors looking to invest in the aforementioned sectors. However, direct equity investments are risky and one way to mitigate these is through mutual fund investing.
Several asset management companies (AMCs) offer multiple funds within the GST-benefiting sectors. You may consider investing in these sector-focused mutual fund schemes to maximize your potential returns. However, you may not know which stocks to invest in or how to evaluate different fund options.
The ARQ investment engine in the Angel Wealth mobile application does it for you. It analyzes over a billion data points and provides with customized investment recommendations on GST-benefiting sector funds. The investment engine uses advanced algorithms and quants to offer the best recommendations.
Download the Angel Wealth mobile app today and start investing in the best performing funds.