Like they say that every giant leap leaves behind an impression, the consequences of such a leap can be ascertained only after taking that giant leap. Similarly, our economy is going to take a big leap by implementing a major reform in Indian history on 1st July, 2017 with the introduction of as ‘Goods and Service Tax (GST).’ With GST, the economy moves to ‘One Nation One Tax’ regime.
GST will incorporate under its umbrella a host of indirect taxes levied by the Centre as well as the Sates except for a few state/local taxes. Though, it was pitted in the initial phases that GST will have only one rate of tax, however, considering the Indian Economy, the Centre has fixed tax rates in for slabs i.e. 5%, 12%, 18% and 28%.
Initially, post implementation, the effect of GST on the stock market, is likely to be negative. The companies are likely to face a tough time for first few quarters in understanding the new regime and also will take time to implement and integrate the new regime into their existing systems. While the cost of implementation added with increased tax rates will ultimately be passed on to the consumers, the demand of such goods is likely to see a decline due to such immediate increase in prices and hence, the revenue collections for the companies is likely to fall. While the bigger business will not be affected much in the longer run, the small business entities will face a tough time moving forward. The cost of compliance will also add up and cause further mayhem.
Though, post implementation, the economy will also witness a new direction to move forward, most importantly, the country will represent a new canvas in the foreign markets and attract foreign investment as GST is likely to boost the reputation of the country in moving to a new, transparent and digitally enabled economy.
Similar was the situation in 2005-06, while Value Added Tax (VAT) was implemented in the country and the country moved from single point taxation system to a broader value added based taxation system. At that time also, the markets took a dip but revival was immediate.
Will the stock markets be bearish or bullish to this new step, will have wait until 3rd July, 2017, while the markets open first time post implementation of GST.
The article is written by Sumit Batra who is a practicing tax lawyer since 2007. Practising in the field of Indirect Taxes and appearing before tax forums all across India including various High Courts and Supreme Court of India. Has served as Private Expert – Service Tax Department, Delhi. He has been delivering lectures on service tax before various associations/federations.
Opinions expressed by the Author are exclusively his own and don’t reflect the views of The Policy Times.