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Consumers, light electrical, as well as stocks related to home building, are likely to benefit the most if the government decides to slash rates on many goods and services that currently fall under the 28 percent slab.
The items which are being taxed at 28% are over 200 and include sectors like paints, detergents, shampoo, hair color, coffee, detergent, luggage, footwear, watches, fans, switches, wires and cables, tiles, and plywood may now come under a lower tax bracket.
The GST Council set to approve sweeping changes including simpler procedures and a single return filing form for small firms. The 2-day GST council meeting is underway and the outcome is expected on Friday.
Top sources in the finance ministry told Moneycontrol that the Prime Minister's Office (PMO) is steering the proposed changes aimed at reducing tax and compliance burden for millions of small traders, ease rules and cut rates on many goods and services that currently fall under the 28 percent slab.
The GST Council—the apex body for decision making headed by finance minister Arun Jaitley—will review the return filing process. A group of ministers (GoM) headed by Bihar Finance Minister Sushil Modi will present a paper to the Council, proposing crucial changes in the return filing process, an official said.
“The meeting is aimed to ease the compliance burden for small businesses and recalibrate the tax rates on many common-use goods that fall under the 28% slab,” Motilal Oswal said in a report.
“We believe that the Council might look to lower rates for items in the consumer, light electrical and home building sectors. In our view, this should positively impact companies like HUL, GCPL, Nestle, Asian Paints, Berger Paints, Kansai Nerolac, Titan, Bata, Havells, Crompton Consumer, Finolex, V Guard, Kajaria Ceramics, Somany Ceramics, Century Ply, and VIP industries, among others,” he said.
Analyst on D-Street are looking for a major overhaul in GST rates which could ease the pain of traders as well as consumers. GST has consolidated all indirect taxes into a single umbrella, and categorized them into four broad slabs (5, 12, 18 and 28%), along with a cess on luxury and demerit goods such as tobacco, pan masala, and aerated drinks.
As of now, over 200 items fall in the 28% slab, which includes common-use and luxury items. “By making changes to the GST framework, the Indian government is attempting to address the concerns facing the SMEs post the implementation of the new tax system,” said the Motilal report.
“We believe the reduction in rates will be a significant step toward tax simplification to support the trader community,” it said.
Will cut in GST rates boost demand?
The government hints at cutting GST rates on some items, but that will not be instrumental in boosting demand because of complicated filing procedures, suggest experts.
To make the return filing process simpler, especially for small taxpayers, the GoM may recommend the filing of only the summary return form GSTR3B, and doing away with filing GSTR1, GSTR2 and GSTR3.
GSTR3B is a summary form, which a business is supposed to file for July to December before the 20th of the next month. However, a taxpayer does not have to provide invoice level information in the form.
Currently, businesses have to file returns in GSTR1 (outward supplies or goods that they sell), GSTR2 (inward supplies or inputs and raw material that they buy) and GSTR3 (finalisation of outward and inward supplies of taxable items) and one annual return.
Last month, the Council approved a proposal to allow small taxpayers with a turnover of less than Rs 1.5 crore filing quarterly returns, compared to the earlier requirement for filing monthly returns to reduce compliance burden.
“There is a lot of confusion around the taxation regime. In fact, he does not foresee any V-shaped recovery as demand is still low due to the tax’s impact,” Andrew Holland, CEO, Avendus Capital Alternate Strategies told CNBC-TV18.
He is bullish on the FMCG space as GST is set to give it a great level-playing field and he sees a scope for a lot of margin improvement.
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