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The very basis on which the government has rolled out goods and service tax (GST) is to simplify the current complex tax structure. GST will subsume all the different state and central taxes prevailing currently, essentially leading to one nation one tax.
However, a proposal for a four tier tax structure would complicate things. A government official recently stated that the government is looking into four tax slabs, with the highest incidence of tax at 26%.
This would lead to a lot of legal matters pertaining to classification. Everyone would be fighting it out to enter into the lower tier of the tax bracket. Hence, more the tax rate slabs, higher will be the classification issues.
GST could be a potential game changer for the economy if implemented in the correct manner. All things considered, it could add another 1-2% to GDP growth every year on a sustainable basis. However, the four tier tax structure would complicate things and hamper its implantation. This would have a negative impact on the benefits of this massive tax reform.
The implementation of GST must be a high priority for the government in order for it to be effective. The government will have to address some key issues between various states and ensure that the GST proves to be a boon and not bane for the country.
As far as financial markets are concerned, we have reminded our readers that 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 prove to be the best play.
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