GST (Goods & Service Tax) has been much talked about topic of late. Social media is buzzing with funny meme. There has been many bold predictions & various criticism on GST. Let’s try to understand GST and it’s impact in a simpler way with AI post. We are not going into GST tax structure & technical details, there is already plenty of information on it but we will highlight it’s impact on investors & busting the confusion surrounding it.
What is GST? Indian Tax Law dictates two type of taxes to be levied for the purpose of tax collection.
a) Direct Tax: This is what is charged directly to a person like income tax, wealth tax & property tax. GST is not changing anything with respect to direct tax. This rules out any direct impact of GST on a common person.
b) Indirect Tax: This is charged on goods & services produced by a business. You indirectly pay it when you are purchasing any product or service. GST has replaced Indirect taxation in India. Types of indirect taxes are service tax, sales tax & VAT etc.
Why is so much confusion on GST? Well, this confusion is creation of hyper active social media. In reality, GST is actually simplifying an old & complicated tax system in India. Confusion is bound to happen since everyone wants to sound like a GST expert without any accounting knowledge. It is similar to a situation where a literature student tries to understand nuclear physics that too over social media. Most people do not understand present tax structure & its complications. If the present tax structure is explained at this scale, it would be even more chaotic.
What is so revolutionary about GST? It is revolutionary since it will remove a lot of multiple taxes on same product at different stages of value addition. Also, currently state to state taxes vary but under GST, there will be uniform tax rate across the country on a particular category of service or goods. Similar to globalization which happened in 1992, GST is nationalization within India. Its positive impact will be slow but sure on Indian economy.
GST impact on investors: AI believes GST will have a positive impact on small cap investors, because it will make life difficult for the unorganized sectors to operate. Under GST, companies have to upload their sales invoices online & submit returns every month. With so much digitization coming into the picture, it will be tough for unorganized sector to evade taxes and keep their prices low. This will benefit small companies to grow at the cost of unorganized sectors.
In a long term, standardization & digitization will bring in transparency & increased tax collection and thus pushing the giant wheel of Indian economy on the path of progress. This is very good for the investor community as a whole and the next decade can be very rewarding for equity investors in India.
Short term impact will be on corporate earnings starting Q1 ’17. You must have seen huge sales & discounts from retail companies in the name of GST clearance sale. People are being encouraged to purchase goods which otherwise they would not buy or would have bought in the future. This would push up earning for Q1 & kick start earning uptick for companies for year 2017.
PS: With GST, the service tax for AI subscriptions have increased by 3% (from 15% to 18%). However, we are absorbing this impact on our side till next price revision. So, there is no change in our product pricing due to GST. We encourage subscribers to make most of our ongoing promotional offers till they last.
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