The introduction to new Goods and Service Tax (GST) in India is now on top of the stories. Here, the big question arises - How it will impact stock market and investors? Obviously, any change in taxation system impact on your investment strategies and investment costs. Before we discuss about how it effects stocks, we need to understand what is GST?
Current Indian tax structure is divided into- Direct and Indirect taxes. GST is a comprehensive, multi-stage tax that will be levied on goods and services, implemented to replace all other indirect taxes. The GST will have a 'dual' tax structure, which means a central GST and state GST will be levied on tax of
There are many indirect taxes exist in Indian economy such as VAT, Excise duty, service tax etc. In this scenario, execution of GST bill will significantly help to reduce cost of compliance, because there will be only one indirect tax levied on all goods and services at the rate of 18% collected by central government.
How will it affect stock market?
The implementation will boost the profit of those industries or businesses that often pay multiple levies within the country.
It will be good for the stock market. How? Answer is- it will send a positive wave to Foreign investors and this will lead them to invest in Indian stock market.
However, jump to GST will surely increase the total expense ratio (TER) of mutual funds. That means, mutual funds will see their TER going up and it will impact the overall returns of investors.
In case of equity, when you buy and sell equities, apart from brokerage there are other tax such as securities transaction tax (STT), service tax and others. That is for long-term investors, this may not effect that much. However, for short-term investors, this may change the economics of their funds in the equity.
Hence, for equity market investors; GST could open new horizon. Especially for those who are looking at active and new investment ideas. It provides some key opportunities as well as risks that investors need to be focus on. From a broader perspective, implementation of GST could be a good news for Indian and Foreign investors.
No doubt, at long term GST will be excellent and it has potential to lead the economic integration of country. But, in the short term it’s hard to say whether the market will go up or down due to increasing and reducing prices and execution hurdles. In my opinion, probably the impact is going to be positive.
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