Shares of logistics companies rallied on Thursday after the government cleared substantial changes to the proposed Goods and Services Tax (GST) bill in a bid to get the crucial reform cleared in the Rajya Sabha.
The Cabinet on Wednesday cancelled a 1 per cent inter-state tax for states that manufacture goods, which is likely to assuage the Congress party that had objected to it.
"The decision to do away with the 1 per cent tax proposed earlier to compensate the manufacturing states will remove a major aberration in the GST value chain. Further the statement that the states would be compensated for revenue losses for five years would go a long way in addressing their concerns on a very crucial aspect of the GST process," said MS Mani of Deloitte Haskins & Sells LLP.
There's no word however on the Congress party's other two demands - 1) of putting a cap on the GST rate in the Constitutional Amendment Bill and 2) setting up an independent dispute-resolution mechanism.
Jay Shankar, chief India economist & director of Religare Capital Markets said the scrapping of the 1 per cent levy may be an indicator of some "meeting ground" on the other contentious issues.
"The government may propose putting the principles of arriving at the GST rate in the Constitutional Amendment Bill, and a cap be put in the GST Law that would be followed up after the constitutional amendment is passed as a legal ring-fencing on tax rates to assuage Congress concerns," he added.
For the tax reform to become a reality, the government needs not only the backing of states but also of two-thirds members in the opposition-dominated Rajya Sabha to pass a constitutional enabling amendment.
Analysts say GST will reduce the cost of logistics companies by eliminating various state taxes. The implementation of GST will also lead to higher GDP growth over the long term, they added.
Allcargo logistics closed 6.74 per cent higher, Transport Corporation of India ended with 6.9 per cent gains and VRL Logistics added 3.83 per cent compared to 0.66 per cent gains in the broader Sensex.
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