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Among a lot of things that are moving the Indian share markets, the possibility of GST becoming a reality tops the list. As soon as there's some whiff from this corner, there's a beyond normal movement in the stock markets. The same was seen in the stock markets this week after the NDA government passed four bills related to the GST in the Lok Sabha.
That says the GST is looked upon with much optimism and importance. The odds of GST becoming a law seems quite decent. And its rollout is believed to take off from July this year. With that in mind, let us examine what this tax reform will mean for the economy, the government, and the common man.
Looking things from a broader perspective, GST marks a step towards federalism. By passing the four bills relating to different aspects of the GST, the Lok Sabha has for the first time put limitations on its own powers. Also, the gradual developments seen for GST indicate that there are far fewer tussle amongst the political parties as were seen earlier.
Further, GST will bring down the existing cascading effect. It will create a common market where all the goods and services will have a common tax rate. It will also offset the tax paid at earlier stages by allowing for credit.
Moving further, an important aspect of GST is its new compliance mechanism. Under GST, each taxpayer will have to report electronically for the states they are present in. The same has to be done monthly and with a single portal called GST Network (GSTN). About 8 million PAN-linked taxpayers will be tracked electronically across the value chain through this portal. This would further plug tax leakages within the GST chain.
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So going by the above details, one can say that GST is a move in the right direction. By simplifying the indirect tax code, it will ease the business environment and also create a level-playing field for businesses.
Further, the reform is likely to bring about a structural change in the economy. The exclusion of cascading effects till the level of a final consumer will significantly improve the competitiveness of the original goods and services in the market. This will have a beneficial impact on the GDP growth of the country.
In all, the implementation of GST must be a high priority for the government to make it effective. Surely, the government has left no stone unturned for the passage of the GST Bill. If all goes well and as planned, the Bill would bring the biggest change in the country's tax structure since India's independence.
As far as financial markets are concerned, the implementation of GST is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players forming part of sectors having a high proportion of the unorganized segment.
However, GST should not change one's perception about businesses and the way they value them. In other words, following a bottom-up approach and picking undervalued stocks during such times could continue to prove the best play.
To get a detailed view on the Goods and Services Tax (GST), you can read Vivek Kaul's report, GST & You: What the Media DID NOT TELL YOU about the GST.
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