After reading this title, the very first question that will pop up in your mind, does Goods and Services Tax (GST) really impacts the stock market in India. We all know that it has some marked effect on the financial budget of the common man and the various sectors of the Indian economy, but how does it affects trading or investing is a very interesting question that many people may not know. So, what is the effect of GST on the share market? Let’s find out the answers.
What is GST (Goods and Service Tax)?
Before studying the impact of GST on the Indian stock market, it is important to take a short overview of the GST. It is essentially an indirect tax that was passed by the parliament on 29th March 2017 and came into the effect from 1 July 2017. It is a single tax on the supply of goods and services. It has abolished the usage of different types of taxes such as the service tax, Value Added Tax (VAT), Octroi, Central Excise Tax and so on.
Here is how the GST may affect the stock market in India
- Increase Foreign Investment: The GST has gone on to create a positive sentiment among the foreign investors or buyers. After the uniform tax, India’s image abroad has taken a big boost because earlier the foreign investors were required to pay different tax and complete various hectic formalities. However, after the arrival of the GST, now they are required to pay a single tax and have lead to an increase in the foreign investment in the India stock market.
- Compulsory Digital Records: After coming up of the GST, more emphasis is devoted maintaining the digital records of the investment undertaken in the stock market. Now, the smaller firms that carry out a large percentage of their business in cash will now be required to maintain the digital records. One of the biggest advantages of this will be the companies will not be able to hide or under-report revenues. Recently, the Securities and Exchange Board of India (SEBI) has made it compulsory for the dematerialization of the shares held in the physical form to April 1, 2019. This will go on to minimize the fraud and manipulation risk in physical transfer of shares.
- Improvement in the Economy: With the introduction of the GST, now there is a unified market, when we talk about the tax implementation in India. The transaction of goods and services will be quite smooth across the states. This means that there will be an improved competitiveness for the trade. It leads to the higher or excellent productivity gains and most importantly improvement in the GDP will help in ease of doing business and make Indian economy attractive as a foreign investment destination.
- Boost Profits and Share Prices: GST as reduce the cost of logistics as there is no need to pay the octroi tax, which was needed to pay earlier. Now, with the unified taxation system, there is no requirement to pay 5-6% as the octroi tax and reduce multiple levies on the transactions on the various checkpoints. This is in turn makes the supply chain more efficient. The FMCG sector benefits greatly from this because now they will be pass on the benefits to the consumers in terms of discounts or uniformity in the product prices. When the demand for the product is higher, then it indicates that the company is performing well or earning profits and makes the shares of the company more attractive. All these factors improve the market sentiment, which in turn lead to the rise in the share prices.
By now, you may have got a good knowledge about the impact of GST on the stock market and its benefits to the economy and consumers. To know more about the impact of GST on the stock market, the investors can take advice or suggestions from the stock market experts.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.