The Goods and Services Tax (GST) is expected to be implemented in the July-September quarter of 2017-18, which in turn may lead to high risk to consensus earnings growth expectations for 2017-18, says a report. The fruition of GST now remains the single biggest focus area among the unfinished agenda of the government, said Deutsche Bank in the report.
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“We believe that the government will endeavor to roll out GST in 2017-18 itself, despite the pressure to delay it as the economy may not be able to cope with multiple transformational changes (the earlier being the demonetisation drive) in the same year,” it said in the research note.
The report said though India must move to a GST regime, the transition is likely to be disruptive for large sections of the economy and Small and Medium Enterprises (SMEs).
SMEs constitute 40 per cent of GDP and are the second largest employer in the country after agriculture. Many SMEs have been impacted very significantly following demonetisation and may be impacted further as GST is introduced, it added.
“Based on the progress on GST so far, we estimate that the GST could be implemented in the second quarter of 2017-18. Consequently, we see a high risk to consensus earnings growth expectations for 2017-18 which may need to be revised downwards in second half of 2017-18,” the report added.
Apart from significant headway in terms of identifying the different slabs and assigning most of the goods and services under a particular slab, the key unsolved vexatious issue remains that of duality of control over inter-state transactions.
“While the initial deadline of April 1, 2017 seems difficult to attain, we will not be surprised if GST is initiated by second half of 2017-18,” the report said.
While the long term benefit of a uniform income tax regime is well appreciated, several businesses will take time to adjust to the new tax dispensation which may be disruptive for operations.
Following which, some earnings impact is anticipated once GST is rolled out and consensus earnings would be adjusted accordingly, the report said.