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Progress on GST to set the trend for equity markets: Analysts

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Mumbai: Domestic macro-economic data, coupled with progress on getting the goods and services tax (GST) bill through parliament will determine the trajectory of the equity markets in the week ahead, market observers say.

What will also impact sentiments will be the position taken by foreign investors ahead of an imminent US interest rate hike, reforms and the pace of recovery in the industrial clusters near Chennai after incessant rains.

“We expect markets to remain volatile with a negative bias ahead of the US Federal Reserves (US Fed) meeting mid-month,” Vaibhav Agarwal, vice president and research head with Angel Broking, told a news agency.

The chances of a US interest rate hike were heightened after the US Fed Chairperson Janet Yellen made hawkish comments, indicating a certain hike in interest rates during the mid-December policy review.

On Wednesday, Yallen had said that she is looking forward to a US interest rate hike which will be seen as a testament to the country’s economic recovery.

A US rate hike could potentially lead to a massive pullback of foreign funds from emerging economies like India.

Furthermore, both the equity markets and the rupee are expected to open Monday’s trade weaker as a key US data – the non-farm payroll figures – showed healthy growth in November.

The data showed that the US economy created 211,000 jobs last month against expectations of 200,000.

“Going into the US Fed policy meet, an EM (emerging market) currency like the rupee will remain under pressure against the US dollar, as foreign funds keep exiting the equity markets,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told a news agency.

“The FPIs (foreign portfolio investors) have been consistently selling since March this year. They are reallocating funds invested in Indian equities which are increasingly being viewed as over-valued,” hr added.

Selling pressure by the FPIs has dragged the rupee’s value lower.

However, on a week-to-week basis, the rupee gained six paise at 66.70 to a US dollar (December 4) from its previous close of 66.76 (November 27). Nevertheless, the rupee had dipped to a 27-month low of 67.01 on Friday.

The value of the Indian rupee has been dented due to selling spree in the Indian debt and equity markets by foreign funds.

Figures from the National Securities Depository Limited (NSDL) showed that the FPIs sold Rs.3,362.77 crore or $503.32 million in the equity and debt markets from November 30 to December 4.

Data with stock exchanges showed that the FPIs sold stocks worth Rs.3,447.17 crore in the period under review ended December 4.

The FPIs have taken out Rs.23,352 crore in August-September. In November, the foreign investors offloaded stocks worth around Rs.9,000 crore.

On the other hand, the domestic institutional investors (DIIs) bought stocks worth Rs.2,308.29 crore during the just-concluded weekly trade.

Besides global factors, upcoming macro-economic data points like the index of industrial production (IIP) and consumer price index (CPI) will affect investors’ appetite to chase prices.

“Investors will keenly follow the CPI and the IIP data, which are crucial indicators of macro economic trends. The data points assume further significance especially after a below-expected eight core industries (ECI) and purchasing mangers index (PMIs) data,” Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.

The monthly industrial production and retail inflation figures are expected to be released on December 11.

In addition to the macro-economic data, progress or lack of it towards getting the GST bill passed in parliament will be a key trigger going forward, elaborated Pankaj Sharma, head of equities for Equirus Securities.

“Next week, we think the markets would strongly focus more on what stand the opposition parties take on the GST bill and how the winter session progresses,” Sharma told a news agency.

“If both the government and the (principal opposition party) Congress reach a resolution on GST, it will be positive for the markets. Otherwise, we expect the markets to remain range bound next week.”

The government needs to pass the GST bill in this session to meet the April 1, 2016, roll-out deadline, as just parliamentary approval is not sufficient for implementing the pan-India indirect tax regime.

The bill has cleared the Lok Sabha and is now with the Rajya Sabha, where the Congress and other parties have demanded a series of amendments.

The amended bill will be tabled in the Rajya Sabha and if passed, will again have to clear the Lok Sabha. Thereafter, it has to clear half of the 29 state assemblies before it is sent to President Pranab Mukherjee for his assent.

During the previous week, both the bellwether indices of the Indian equity markets ended in the red.

The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) declined by 490.09 points or 1.87 percent to 25,638.11 points from its previous weekly close at 26,128.20 points.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) receded during the weekly trade ended December 4. It ended lower by 160.8 points or 2.02 percent to 7,781.90 points.

(IANS, Rohit Vaid)
(Picture credit:www.skgadvocates.com)

 

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What Are the Benefits of Introducing GST in India?

GST has enabled small businesses to simplify their tax return by introducing the Composition Scheme under GST

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GST
The GST created a unified tax structure and provided businesses with certainty and transparency. 

The Goods and Services Tax is a consumption tax that has changed the way India does indirect taxation. The GST was under consideration for a very long time. The tax structure which India had before the advent of the GST was quite complicated and extremely convoluted.

There were many taxes which were administered by a myriad of governing bodies, some going down to the city level. This created a lot of problems for businesses and consumers alike. Not only did businesses have to employ people to figure out and compute the tax, but they also had to figure out who to pay it to.

GST
Simplification of small business was a priority which is why, for example, the Composition Scheme under GST was introduced. This scheme helps small businesses reduce red tape and file more straightforward tax returns.

This created a drag on the economy and took money out of productive uses. All of this changed with the introduction of the GST tax. The GST created a unified tax structure and provided businesses with certainty and transparency.

Simplification of small business was a priority which is why, for example, the Composition Scheme under GST was introduced. This scheme helps small businesses reduce red tape and file more straightforward tax returns.

Some of the main benefits of the Goods and Services Tax system are:

1. Simplification of the Tax Code:

The pre-GST era was characterized by a complex and murky tax structure in which companies had to navigate as best they could. There were many layers of taxes such as VAT, Cess, Central Excise Duty as well as local taxes at the city level, which needed to be paid when a product or service was delivered to the customer.

This has now been simplified with the introduction of the GST. Now companies need to keep track of one single tax. They can now file taxes with a single entity in a secure manner.

2. Ease of Doing Business:

The implementation of GST has brought India up the ease of doing business rankings. Having a convoluted and complex tax structure with the manual filing of taxes creates a massive volume of paperwork.

Not only was there a lot of paperwork, but offline tax filing also created scope for corruption. GST has changed all of that with the introduction of one single tax under a single tax authority. It is now a much more streamlined process which is easier for businesses to navigate.

It is also essential to have a streamlined tax process for attracting foreign investors, so that has helped with Foreign Direct Investment in India.

3. Double Taxation:

Pre-GST, there was a problem of cascading taxation, wherein taxes would be piled on top of each other, leading to double taxation. A lot of the time, businesses and consumers had to pay a tax on top of another tax.

This was because there was no way for businesses to claim an input tax credit for every step of the way. GST has changed that entirely by introducing a system where each every step of production of a product is recorded, so taxes are only added incrementally, and double taxation is avoided.

Also, small businesses faced a daunting task of navigating the complex tax system, and the GST has enabled small businesses to simplify their tax return by introducing the Composition Scheme under GST. This has been a significant benefit of GST.

4. Tax Compliance:

Tax compliance has always been an issue in India, under the older tax system where tax filing was mostly done manually, there was a lot of tax evasion and under-invoicing.

Since there was very little that the government could do to track the production of goods. With the advent of the GST, the way the system is designed, it is much easier to track the production of products through the various invoices uploaded by businesses.

The Input Tax Credit system also incentivizes companies to report the number of goods and services used so that they can claim Input Tax Credit. This has been a positive development for tax collection.

5. Increased Tax Collections:

With increasing tax compliance, there is a potential for increasing tax collections. With the increased tax collection, the government can spend more money on important public services like health, safety, etc.

This is also one of the most important benefits of having a tax system that allows higher rates of compliance.

GST
The Goods and Services Tax is a consumption tax that has changed the way India does indirect taxation. The GST was under consideration for a very long time. Pixabay

6. Foreign Investment:

In a globalized world, it is vital to attract capital from around the world. Top companies who want to invest in a country look for stable and transparent tax regimes so that they have regulatory certainty.

The older tax structure was haphazard and under the authority of multiple tax collecting bodies. This created a problem for foreign firms who wanted to invest in the country but had a tough time negotiating the tax landscape of the country.

The GST has completely changed that. The GST is under one central authority and uses the GSTN (Goods and Services Tax Network), which is the information technology service which underpins the whole system.

The GST system is also much more nimble and able to respond to the needs of the market because it is under one single tax authority, the GST Council. This is also an excellent benefit for the country as it doesn’t take a lot of consultation to change the rules in case of adverse market conditions.

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In conclusion, there are several benefits to the country as a whole with the implementation of the GST system. Small business is the driving force of the Indian economy, providing a lot of employment. Things like the Composition Scheme under GST has helped simplify the tax filing for small business while maintaining compliance.