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Consumer goods, logistics, auto firms to benefit most from GST

GST will make transportation by trucks cheaper and reduce stoppage times at inter-state checkposts. Low tax rate will also make passenger vehicles, two-wheelers and three-wheelers cheaper

business Updated: Aug 03, 2016 16:50 IST
Nachiket Kelkar
Nachiket Kelkar
Hindustan Times
GST,trucks cars,taxes
Trucks line up at a checkpost . GST will reduce stoppage times, thereby resulting in higher business(HT Photo)

Logistics, fast-moving consumer goods (FMCG), consumer durables and automobiles are likely to be the biggest beneficiaries of the Goods and Services Tax (GST).

Logistics companies are set to gain the most on the taxation front. At present, the central government levies excise, customs duty and service tax, while the state levies value-added tax (VAT). There is also a central sales tax (CST) for inter-state movement of goods. To avoid CST, manufacturers have built warehouses in all states where they operate, resulting in an inefficient supply chain.

GST will address the issue by eliminating CST and inter-state VAT arbitrage.

“Companies will focus on building fewer but larger warehouses based at strategic locations. Investment in warehouses will focus on operational efficiency as the parametre rather than as a tax-avoidance mechanism,” according to a report by foreign broking firm Nomura.

For companies, such as VRL Logistics and Snowman, GST will make transportation by trucks cheaper and reduce stoppage times at inter-state checkposts. This will mean more trucks and higher business by the same truck, which will lead to improved efficiency for these companies.

Not just trucks, passenger vehicles, two-wheelers and three-wheelers will also become cheaper. India’s largest carmaker Maruti Suzuki India Ltd (MSIL), the market leader in the small-car segment, will be the biggest beneficiary as taxes will come down from 31% to 18%. Lower prices will boost demand. Similarly, SUV prices will also come down by 12% to 13%, which is likely to benefit Mahindra & Mahindra, the country’s top SUV maker, the most.

Two-wheeler makers, including Bajaj Auto, Hero MotoCorp and TVS Motor, will also see taxes coming down by 12% (from the minimum 18% currently).

GST will also result in easier transportation of goods from one state to another, by directly surpassing different octroi and check points, thereby reducing transportation time as well as overall cost, brokerage firm Edelweiss said. Additionally, it will also reduce the supply chain inventory and logistics cost by 30% to 40%.

For households and personal car companies also, it will be a big positive.

At present, indirect tax for companies, including Hindustan Unilever, Colgate Palmolive, Godrej Consumer Products and Marico, is estimated to be 24% to 25%. A 17% to 18% GST rate will bring taxes, as well as other costs, such as warehousing, among others.

“For all FMCG companies, reduction in warehouse, logistics and inventory cost is expected to generate a substantial savings. On the operational front, warehouse rationalisation and reduction of overall tax rates are expected to generate savings, which could cumulatively range between 200 basis points and 300 basis points,” Edelweiss said.

For retailers though, GST may have a few negatives in store. For jewellers, including Tanishq (Titan), Tribhovandas Bhimji Zaveri, PC Jeweller and Kalyan Jewellers, the indirect tax rate may increase 2% to 6%.

“For players in the organised retail industry, we believe this is a key negative, as it reduces the attractiveness of gold as an investment and brings down competitiveness with the unorganised industry. We expect companies to pass this on to consumers directly,” Nomura said.

However, the biggest change for retailers could come from the fact that companies like Future Consumer Enterprise, Titan and Bata will now need to pay GST when the goods are transported out of the factory, and not when sold to clearing and forward agents. For retailers, who store significant amounts of finished goods inventories for a large numbers of days before the goods are sold, this could be a big blow.

First Published: Aug 03, 2016 16:50 IST