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Logistics, consumer goods, auto to benefit

businesspaper Updated: Aug 04, 2016 06:44 IST

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

At present, the central government levies excise, customs duty and service tax, while the state levies the 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 interstate VAT arbitrage.

“Companies will focus on building fewer but larger warehouses based at strategic locations and focus on operational efficiency rather than as a tax avoidance,” according to a report by Nomura.

For companies, such as VRL Logistics and Snowman, GST will make transportation by trucks cheaper and reduce stoppage times at inter-state check-posts as octroi will be subsumed. This will mean higher business by the same truck, leading to improved efficiency .

Automobiles will also become cheaper. India’s largest carmaker Maruti Suzuki 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, India’s biggest SUV maker. Two-wheeler makers, including Bajaj Auto, Hero MotoCorp and TVS Motor, will see taxes coming down by 12%.

Consumer goods companies also stand to gain. At present, indirect tax for fast-moving consumer goods (FMCG) companies such HUL, Godrej and Colgate is estimated to be 24-25%. A 17-18% standard GST rate will bring taxes, as well as other costs, such as warehousing, among others.

But its not all win-win. For jewellers such as Tanishq, 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 un-organised industry. We expect companies to pass this cost to customers,” Nomura said.