Strategy

INDIA

14 December 2015

GST Rate, Structure & Rationale

Will it deliver in its current sub-ideal form?
With barely a week left for the Winter session of Parliament to
end, hopes of the Constitutional Amendment Bill on GST getting
the Rajya Sabha nod have remained fickle. Recommendations
of the CEA panel on a Revenue Neutral Rate and the GST
REPORT AUTHORS
structure do hint of a possible meeting ground between the
govt. and the opposition. Even in its current sub-ideal form, the Jay Shankar
tax reforms can deliver significant efficiency and productivity Chief India Economist
improvements by moving towards a single market across India. +91 11 3912 5109
Among the beneficiaries, we like Maruti Suzuki, Eicher Motors, shankar.jay@religare.com

Hero MotoCorp, Ultratech Cement, HUL, GSPL, Asian Paints, Rahul Agrawal
Orient, Bata India, Symphony. Telcom and metal sectors are +91 22 6766 3433
likely to be adversely affected. ag.rahul@religare.com

GST biggest indirect tax makeover post the VAT: The Goods and
Services Tax (GST), which has been adopted by 160+ countries in some
form or the other, has been struggling to meet its fate in India for
more than a decade now. The tax reform, which is the extension of the
VAT that was implemented in the mid-2000s, is heralded as the great
hope for simplifying the intricate web of indirect taxes in India.

So near and yet so far: The Constitution Amendment Bill (CAB) has
been passed by the Lok Sabha, but has been stuck in the Rajya Sabha,
where NDA is in minority. There seems to be a meeting ground on all
the three conditions put up by the Congress party. However, even if
the bill receives the RS nod, its a long way ahead. The CAB will need to
be ratified by at least 15 state legislatures before becoming an Act
post which the Centre and the States will have to pass their GST laws.
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The government is unlikely to meet its 1 April 2016 implementation
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timeline. The best case for implementation date is 1 Oct 2016.

A sub-ideal GST: The CAB has many distortionary features that make
the GST regime a sub-ideal one. These include the additional 1% levy,
large exclusions from the GST base, the GST rate structure, and
exemptions on petroleum products and other goods. Nevertheless,
even in its second best avatar, the reform has the potential to deliver
significant efficiency and productivity gains.

Positive for corporates: GST implementation is expected to affect

India Inc. in three broad ways:

1. Tax-rate differentials: The effective indirect tax incidence is

expected to decline post the implementation of GST due to removal of
the tax-on-tax (cascading effect) arising from the non-availability of
input tax credits (as in the current system) across the value chain.

2. Supply chain efficiencies: Since the GST subsumes most of the

state-level taxes, it would reduce the need for reconciliation at state
borders. This could lead to a dismantling of the web of check-posts
around the country, thereby speeding up the movement of goods and
reducing logistics and inventory management costs, which are very
high in India vis--vis other countries.

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 GST Rate, Structure & Rationale Strategy
INDIA
Will it deliver in its current sub-ideal form?

3. Narrowing differentials between unorganised and organised players: GST has

an in-built incentive of self-policing. Since input tax credit will be available for all
taxes paid earlier in the value chain, firms would require evidence of compliance
from the preceding links to claim set-offs. Thus, they would prefer sourcing inputs
from compliant firms. This could increasingly bring unorganised players under the
tax net, thereby reducing their price competitiveness vs. organized players.

Centre-State finances to undergo a change: The concept of RNR implies that

aggregate revenues are not expected to change once the GST is implemented.
However, the distribution of revenues is likely to change - producer states are likely
to lose, while consumer states and states with large services sector are likely to gain
in the initial years. However, the GoI has agreed to fully compensate the states for
any revenue loss for the first five years.

Inflation and GST: The very idea of a Revenue Neutral Rate may imply that the GST
should, in principle, have no aggregate impact on inflation and price level. However,
this need not be always true, especially if the weights of commodities in CPI
consumption basket are different from their contribution to the indirect tax pool.

Experiences in a number of economies like Australia, New Zealand and Canada

show that GST implementation led to a step increase in prices, boosting inflation in
the first year. In India, even though 54% of the CPI consumption basket is likely to
be GST exempt, probability of adverse impact on prices is higher, given that prices
have been more inflexible downwards. This requires setting up of robust monitoring
and rectifying mechanisms, especially for prices of essential commodities.

Sector-wise impact
Fig 1 - Main gainers from GST
Sector Remarks Beneficiaries
Major auto pack including Bajaj Auto, Eicher Motors,
Hero MotoCorp, Maruti Suzuki, Tata Motors. Mahindra &
Automobiles Current tax incidence on passenger cars at 25-40%
Mahindra to benefit the most if SUVs are taxed at
standard rate
Tiles Unorganised segment has a high market share at ~50% Kajaria Ceramics, Somany Ceramics
Pipes Share of unorganised segment ~45% Finolex Industries
Current tax incidence at ~25%; ~50% of industry
Construction chemicals Asian Paints, Pidilite
unorganised
Artificial leather Share of unorganised segment ~50% Mayur Uniquoters
Major cement players including Ambuja Cement, Grasim
Cement Total indirect taxes: 26%, high logistics costs
Industries, JK Cement, Shree Cement, UltraTech Cement
Fans, wires and cables Share of unorganised sector at ~30-40% Bajaj Electricals, Havells
Bearings Share of unorganised sector at 40% SKF India
Air coolers Share of unorganised sector at 75-80% Symphony, Voltas
Footwear Large unorganised sector; +22-24% current indirect tax Bata India
IT Hardware Consolidation in warehouses operations improving Redington India
Logistics and Efficiency improvements to higher utilisation rates and
GATI, Blue Dart, VRL Logistics
warehousing companies increased demand for logistic services
Source: RCML Research

Fig 2 - Losers from GST

Sector Remarks Losers
Telecom Service tax increases from 14% currently to 18% All telecom players
Hindalco Industries, Hindustan Zinc, JSW Steel, NMDC,
Metals Current indirect tax incidence of 10-11%
Tata Steel
Source: RCML Research

14 December 2015 Page 2 of 25

 GST Rate, Structure & Rationale Strategy
INDIA
Will it deliver in its current sub-ideal form?

Getting past the Rajya Sabha hurdle

Chances of the Constitution Amendment Bill (CAB) on GST clearing the Rajya Sabha (RS)
hurdle have remained fickle. With almost no hope of the Parliament functioning before
the current Winter session began, expectations began to rise as there was business
conducted in the two houses, followed by meeting between BJP-led NDA and Congress
Party led UPA on the CAB on GST. The Bill requires two-thirds majority to vote in favour
since it amends the Constitution a feat impossible to achieve without UPA support,
which holds 28% of RS seats.
Fig 3 - Party-wise position in the Rajya Sabha
Position No. of seats
Parties supporting
NDA 63 The Bill requires two-thirds majority to
Samajwadi Party 15 vote in favour, and thus support of the
Trinamool Congress 12 UPA which holds 28% RS seats
Janata Dal (United) 12
Bahujan Samaj Party 10
Biju Janata Dal 6
Nationalist Congress Party 6
DMK 4
Total 128
Parties opposing
UPA 69
AIADMK 12
Left Parties 10
Total 91
Stance not known
Other parties 7
Nominated 8
Independents 7
Vacant seats 4
Total 26
Source: RCML Research

The Congress Party has laid down three conditions to support the bill (a) The maximum
GST rate be capped at 18% (b) the 1% additional levy be scrapped (c) a credible dispute
resolution mechanism be established. While the BJP is expected to agree to the last two,
it is unlikely to relent on the first condition.

Even if the CAB does get the RS nod, it would still be far from becoming an Act. At least
15 state legislatures will have to pass the bill. With the BJP and its allies ruling 11 states at
present, 4 more states would have to pass the bill.

14 December 2015 Page 3 of 25

 GST Rate, Structure & Rationale Strategy
INDIA
Will it deliver in its current sub-ideal form?

Fig 4 - Position in State Legislatures

States Number
Maharashtra, Madhya Pradesh, Rajasthan, Haryana, Gujarat, Goa, Chhattisgarh,
States ruled by BJP 8
Jharkhand

States ruled by BJP allies Punjab, Andhra Pradesh, Jammu & Kashmir 3

Non-BJP/ Non-Congress ruled states West Bengal, Uttar Pradesh, Telangana, Orissa 4

Karnataka, Uttarakhand, Himachal Pradesh, Arunachal Pradesh, Kerala, Assam,

Congress-ruled states 9
Meghalaya, Mizoram, Manipur
Other states Bihar, Tamil Nadu, Sikkim, Tripura, Nagaland, Puducherry 6
Source: RCML Research

After the Constitution is amended as per the CAB, the GST Council, comprising of the
Finance Minister and nominated State Ministers will be formed within 2 months. It will
deliberate on the specific features of the GST. Besides, the Centre and all the states will
have to pass their respective GST laws.
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Thus, the entire process is a long drawn one and is unlikely to be completed before 1
April 2016, which is the governments intended date of bringing the GST into effect. We
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believe that the GST will only be able to come into full force from 1 April 2017 (base
case). However, if the government pushes hard, it could manage to introduce it from
mid-FY17 (best case).

Process of GST Implementation in India

To implement the Goods and Services Tax in India, the constitution needs to be amended
to give the central and state governments concurrent power to make laws on taxation of
goods and services. The Constitution (122nd Amendment) Bill, 2014, seeks to do the
same.

Amending the Constitution is a tedious process. A bill to amend the constitution must be
introduced in either house of the Parliament, which must then be passed in both houses
by a special majority i.e. by a majority of the total membership of that House and by a
majority of not less than two-thirds of the members of the House present and voting.
The Constitution does not permit a joint session of the Houses of the Parliament to be
held in order to pass a Constitutional Amendment Bill each House has to pass the bill by
the prescribed special majority.

Once both the Houses have passed the bill, it must be ratified by Legislatures of at least
50% of the States (15 States). Thereafter, it is presented to the President for assent.

The Constitution (122nd Amendment) Bill is only an enabling legislation. Once this goes
through, the central government will have to pass a central GST bill and the States will
pass state GST bills, which will draw powers from the Constitution in order to levy the
Goods and Services Tax. These bills will have to be passed with a simple majority.

After the Centre and all the States enact their respective GST legislatures, the GST can be
levied and the GST regime will come into full effect.

14 December 2015 Page 4 of 25

 GST Rate, Structure & Rationale Strategy
INDIA
Will it deliver in its current sub-ideal form?

Indias current indirect tax structure a complex web of levies

The Constitution of India currently empowers the Centre to levy indirect taxes on the
manufacture of goods and the supply of services and the States to levy indirect taxes on
the sale of goods. This concurrent entitlement has led to a complex indirect tax structure
with different tax rates and structures across States and a cascading of taxes (tax-on-tax)
due to non-availability of input tax credits.
Fig 5 - Indias current indirect tax system a snapshot
Goods Services
Centre State Centre
Tax Excise duty VAT Service tax
Full value chain Everything except services in the
Tax Base Only manufacturing
(up to retail) negative list
Number of tax rates 8 3+ 11
Standard Tax Rate 12% 12.5-14.5% 14%
Low Tax Rate 6% 4-5.5% 4.10%
Proportion of base taxed at
Standard Rate 59.2% 28.5% 65.2%
Lower Rate 39.6% 67.0% 34.8%
Proportion of Collections from
Standard Rate 84.9% 32.8% 86.2%
Lower Rate 11.1% 54.8% 13.8%
Average tax rate
Base-weighted 8.4% 7.5% 9.4%
Collection-weighted 11.7% 9.6% 11.2%
Threshold limits Rs.15 million Rs.0.5-1 million Rs.1 million
Number of exemptions 300 90 -
Revenue loss due to exemptions Rs.1.8 trillion Rs.1.5 trillion -
Source: Report of the CEA Panel on GST rates, RCML Research

Proposed GST regime Harmonizing a mosaic of state/central levies

Fig 6 - Current indirect tax system and GST regime Key differences
Current indirect tax system Proposed GST regime

Differentiation between goods and services - they are taxed No differentiation between goods and services; both
Good vs. service
separately subject to one tax

Powers of taxation Only the Centre can tax services Both the Centre and States can tax services

Origin-based (central government excise duty on production and Destination-based (value added tax at point of
Incidence of taxation
States' sales tax at sales stage) consumption only)

Number of indirect One composite GST with a dual structure

Multiple (central excise, sales tax, entry taxes, CST, service tax)
taxes (CGST+SGST)

Tax rates Different tax rates on products across different states Single tax rate to apply on all goods and services

Exemptions More than 300 for Centre and 90 for states Fewer exemptions envisaged

Input credit set-off not available across different taxes. For Seamless flow of input tax credits (except in the case
Set-offs
instance, set-off not available for excise against state sales tax of the proposed 1% additional levy)
Source: RCML Research

14 December 2015 Page 5 of 25

 GST Rate, Structure & Rationale
Will it deliver in its current sub-ideal form?
The GST aims to simplify and harmonise Indias current indirect tax regime. The CAB
intends to restructure the current distribution of fiscal powers in the Constitution; post
the bills passage, the Centre and States would be empowered to levy a single tax (GST)
across the value chain right from manufacture to consumption.
Key features of the proposed GST regime:
Destination-based tax: The GST is a destination-based
tax and will be levied at the point of consumption only.
The current regime is an origin-based regime, with taxes
levied at the point of origin of goods/supply of services.
Goods vs. services: The current system taxes goods and
services separately. The proposed GST regime will not
differentiate between goods and services with both
being subject to one tax. Besides, it will also empower
States to tax services, which are currently only subject to
taxation by the Centre.
Dual GST (CGST+SGST): A dual structured GST is
proposed to be levied on the supply of goods and
Fig 7 - Taxes to be subsumed in GST
Central GST State GST
Central Excise Duty
(CENVAT) Sales tax
Additional Excise Duties Entertainment tax
Service Tax Luxury tax
Countervailing Duty Taxes on lottery, betting
(CVD) and gambling
Special Additional Duty of Octroi and Entry Tax
Customs (SAD)
State Cesses and
Surcharges and Cesses Surcharges
levied by Centre
Purchase Tax
Central Sales Tax
Source: RCML Research
Input tax credit: Input tax credit of CGST would be
available for discharging the CGST liability on the output
at each stage. Similarly, the credit of SGST paid on inputs
would be allowed for paying the SGST on output. No
cross utilisation of credit (across CGST and SGST) would
be permitted. With respect to the IGST, input tax credit
would be permitted to the interstate seller on IGST, CGST
and SGST (in that order) on his purchases.
Additional tax levy: The CAB allows the Centre to levy of
an additional tax on supply of goods, not exceeding 1%,
in the course of inter-State trade or commerce for a
period of two years (period may be extended on
Strategy
INDIA
services. The Centre would levy and collect Central
Goods and Services Tax (CGST), and States would levy
and collect the State Goods and Services Tax (SGST) on
all transactions within a State.
Inter-state trade: The Centre would levy the Integrated
Goods and Services Tax (IGST) on the inter-state supply
of goods and services. The inter-state seller would pay
IGST on the sale of goods to the Centre.
Taxes to be subsumed: All major indirect taxes levied by
the Centre and the States will be subsumed in the CGST
and the SGST (Fig 7).
Fig 8 - Taxes to be left out of GST
Basic Customs Duty
Export Duty
Road & Passenger Tax
Toll Tax
Property Tax
Stamp Duty
Electricity Duty
Entertainment tax levied by local bodies
Source: RCML Research
recommendations of the GST Council). The proceeds
from this levy will be distributed among the States from
where the supply originates.
Compensation to States: Manufacturing States are
expected to lose revenue owing to the destination-based
principle of the GST. As per the Constitution Amendment
Bill, the Centre, for a period of five years, will provide
compensation to the States for loss of revenue due to
GST implementation.
Tax base: As per the CAB, all goods and services (except
alcohol for human consumption) will be brought under
14 December 2015 Page 6 of 25
GST Rate, Structure & Rationale
Will it deliver in its current sub-ideal form?
the GST purview. While petroleum/petroleum products
have been included in the framework, GST would be
levied only upon the Councils recommendations,
implying that present taxes (excise duty, sales tax, CST)
would continue to be levied on these products. For
tobacco and tobacco products, taxes imposed by the
Centre would be levied over and above the GST.
GST rates: The States will be able to fix their SGST rates
in a band above the floor rate (bands and floor rates will
be recommended by the GST council). So the GST rate
will not be uniform across the country, but will vary from
state to state (although in a narrow range).
GST Council: According to CAB, a GST Council would be
created within 60 days of the commencement of the Act,
and would have the Union Finance Minister as the
Chairman. Council members would include the Union
Minister of State in charge of revenue or finance, and
ministers nominated by each State and Union Territories.
The Council would make recommendations on important
issues such as:
(a) taxes, cesses and surcharges levied by the Union, the
States and the local bodies which may be subsumed
in the GST;
(b) goods and services to be exempted from the GST;
Strategy
INDIA
(c) the threshold limit of turnover below which goods
and services may be exempted;
(d) the rates including floor rates with bands of goods
and services tax;
(e) any special rate or rates for a specified period to
raise additional resources during natural calamities;
(f) dates from when GST will be levied on petroleum
products; and
(g) framing dispute resolution modalities.
At least 50% of the council members would have to be
present in to conduct business at the meeting of the
Council. Every decision of the GST Council shall be taken
by a majority of not less than three-fourths of the
weighted votes of the members present and voting,
wherein, the Centre shall have a weightage of one-third
and the votes of all the State Governments taken
together shall have a weightage of two-thirds of the total
votes cast in that meeting.
Goods and Services Tax Network (GSTN): The GSTN is a
not for profit, non-government company that has been
set up primarily to provide IT infrastructure and services
to the Central and State Governments, tax payers and
other stakeholders for implementation of GST.
14 December 2015 Page 7 of 25
 GST Rate, Structure & Rationale
Will it deliver in its current sub-ideal form?
Proposed GST vs. ideal GST
The CAB has certain features that induce distortions, making the proposed GST regime
relatively less attractive when compared to an ideal one. These are as follows:
Distortionary Details
Features
Levy of additional 1% Proposed to meet concerns of manufacturing states
duty such as Gujarat, Tamil Nadu and Maharashtra, which
are expected to lose revenue due to the destination-
based tax principle of the GST
Exclusion of items from Alcohol for human consumption, which contributes
GST base significantly to the States revenues, has been kept
outside the purview of the bill, in line with the demand of
the States.
Taxes on consumption/sale of electricity and real estate
have also been left out.
Exemption on petro- Products like petroleum crude, high speed diesel, motor
products; current tax spirit, NG and ATF have been kept under the ambit of
regime to continue the GST (unlike the 2011 bill) but wont be taxed.
Present taxes (central excise duty on production and
VAT/CST on sales) will continue to be levied.
Rate Structure As per the CAB 2014, States would have the freedom to
set the SGST rates between a floor and ceiling rates (to
be recommended by the GST Council), with the band
currently proposed at 2%. This implies a single uniform
GST rate will not exist across India, but would vary
across States (though in a limited range).
Strategy
INDIA
Our view
The additional levy is origin-based and goes against the
fundamental idea of the GST. It will create tax cascading
(as this will not be available as input tax credit) and
impede interstate trade (Fig 9).
Implementation of this levy would effectively mean that the
current origin-based Central Sales Tax (CST) system will
continue in initial years of GST
Since the Centre has agreed to compensate the States for
revenue losses for five years, the need for this additional
tax is questionable.
The CEA-led Panel has also suggested that this levy be
scrapped.
The Centre should have at included these items in the
ambit of the GST, but exempted them from taxation like
petroleum products. This would have given it the flexibility
to readily tax these products in future.
Any exclusion is effectively a permanent one including
any of these items at a later date would mean undertaking
a fresh amendment to the constitution which is a
herculean task.
Petroleum products are directly/indirectly used as inputs
for a many goods and services. Their exemption would
mean that the cascading effect of the current tax system
would continue as input tax credit would not be available
on these items.
Given the large share of tax revenue earned from
petroleum products (Fig 10), their non-inclusion would
reduce the importance of GST from a revenue perspective,
although this implies that both the central and State
governments retain their fiscal autonomy to a certain
extent.
An ideal GST structure calls for a single national tax rate.
Multiple GST rates across States would impede the
formation of a common national market.
States would be able to retain some amount of fiscal
autonomy because alcohol and petroleum which account
for ~30% of the indirect tax revenue of all states together
will remain out of the GST regime (apart from electricity
and real estate).
14 December 2015 Page 8 of 25
 GST Rate, Structure & Rationale
Will it deliver in its current sub-ideal form?
Distortionary Details
Features
Multiple exemptions exist under the present tax system
the Centre has ~300 items exempted from central
Exemptions on certain
excise duty, while the States (together) have ~90 items
goods to continue
exempted from VAT. These will be merged into a
common list under the GST regime - the GST council,
once constituted, will make recommendations on the list
of items to be excluded.
As per the CEA Panels Report, government estimates
suggest that excise duty exemptions (plus lower rates
on items) result in foregone revenues of Rs 1.8tn,
equivalent to 80% of actual collections. Similarly, states
lose out Rs1.5tn. Altogether India loses 2.7% of GDP
due to exemptions.
Minimum thresholds for Currently the threshold prescribed in different State VAT
GST to be applicable acts (below which VAT is not applicable) is Rs.0.5
million for most the bigger states and Rs.0.5 million for
the North Eastern and special category states. The
central excise duty threshold for goods is at Rs.15
million, while the service tax threshold is Rs.1 million.
The CEA led-Panel proposes to raise these to a
common threshold of Rs.2.5 million for goods and
services (which can be raised to Rs.4 million if needed)
in order to protect the interests of small traders and
small scale industries. The Empowered Committee of
State Finance Ministers had also proposed to raise the
threshold limits
GST council and The GST council can only make recommendations the
dispute settlement CAB does not give it the power to enforce these. This
authority is necessary to ensure that States implement a
homogenous GST model.
Strategy
INDIA
Our view
If majority of the items exempted will be food/essential
items consumed by the lower strata, it is an acceptable
compromise to make. Besides, imposing the GST on
essential goods that are currently exempted from either
excise or VAT or both would be regressive in nature as
their prices would shoot up.
Nevertheless, the government must limit exemptions to
only essential goods in order to widen the tax base and get
as close to the ideal GST regime as possible.
If threshold levels are raised, it will effectively reduce the
number of firms that pay GST, thereby narrowing the tax
base. For instance, at a threshold of Rs.4 million, 79% of
the entities accounting for 1.4% of the total turnover would
be left out of the GST net (Fig 11).
The government must bring as many firms under the tax
net as possible in order to widen the tax base and comply
with an ideal GST regime. Excluding such a large
proportion of tax paying entities will reduce the
effectiveness of the GST
The CAB empowers the GST council to ``decide about the
modalities to resolve disputes arising out of its
recommendations. The Centre/States would be party to
any dispute arising out of GST implementation, implying
that they will hear their own case, given the composition of
the GST council. Hence, there is a case for having a
dispute settlement authority (as proposed in the 2011 bill).
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Will it deliver in its current sub-ideal form?

Fig 9 - Distortions due to the additional 1% levy

With 1% additional levy Without 1% additional levy
Wholesaler (in state X) to retailer (in state Y):
Value of goods 1,000 1,000
IGST (@18%) 180 180
Additional levy (@1%) 11 -
Invoice 1,191 1,180
Retailer to consumer:
Cost of goods 1,011 1,000
Value added 100 100
Total 1,111 1,100
CGST (@9%) 100 99
SGST (@9%) 100 99
Price paid by consumer: 1,311 1,298
Savings 13
Source: RCML Research

Fig 10 - Petroleum products account for 46% of the Centres excise collections
Excise collections in 2013-14 Rs bn % share
Total central excise collections 1,941 100.0
Mineral fuels, mineral oils and products, etc. 886 45.6
Motor spirit 224 11.6
Kerosene 3 0.2
R.d. oil 271 14.0
Diesel oil, n.e.s 2 0.1
Furnace oil 25 1.3
Petroleum gases and other gaseous hydrocarbons 16 0.8
Others, of mineral fuels, mineral oils and products etc 344 17.7
Source: RCML Research

Fig 11 - Distribution of firms across turnover

Number (000's) Total turnover (Rs tn)
Below Rs.1 million 6,433.9 0.8
Rs.1 million - Rs.2.5 million 682.9 1.1
Rs.2.5 million - Rs.4 million 326.0 1.0
Rs.4 million - Rs.10 million 668.3 4.5
Rs.10 million - Rs.20 million 503.1 7.1
Rs.20 million - Rs.50 million 427.0 13.4
Rs.50 million - Rs.100 million 186.9 13.1
Rs.100 million - Rs.1000 million 185.5 46.9
Over Rs.100 million 18.3 137.3
Total 9,431.9 225.3
Source: Report of the CEA Panel on GST rates, RCML Research

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 GST Rate, Structure & Rationale Strategy
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Will it deliver in its current sub-ideal form?

The CEA panel report on RNR, GST rate structure

Calculating the Revenue Neutral Rate (RNR)

The panel led by the Chief Economic Advisor (CEA) has referred to the following three
approaches for RNR calculation:

1. Macro approach (of the IMF),

2. Indirect Tax Turnover approach (ITT) by NIPFP; and

th
3. Direct Tax Turnover approach (DTT as described in the 13 Finance Commission).
Fig 12 - CEA panels recommendations vs. other approaches to estimate RNR CEA panels approach for RNR
Approach
GST Base
RNR
Collection calculation derived from ITT approach
(Rs tn) efficiency
Macro 59.9 11.6 0.7
Indirect Tax Turnover 39.4 17.7 0.42
Direct Tax Turnover 58.2 12.0 0.68
Committee's (Preferred) 46.2 15.0 0.56
Committee's (Alternate) 44.2 15.5 0.53
Source: Report of the CEA Panel on GST rates, RCML Research

The collection efficiency ratio is defined as the ratio of actual revenue collected to total
potential revenue. The committees preferred RNR is at 15%, which has a collection
efficiency ratio of 0.56, which compares well with several emerging market economies
(Fig 12) as well as other approaches.
Fig 13 - Collection efficiency in major VAT/GST economies

Source: Report of the CEA Panel on GST rates, RCML Research

On the standard rate too, it may be noted that GST is intrinsically a regressive tax and the
higher the rate, the greater the regressivity. The committee is of the view that countries
with well-developed social safety nets can better offset this regressivity; however, given
the lower level of development in India, it needs to keep the standard rate in line with
international rates while also ensuring that it is as low as possible.

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 GST Rate, Structure & Rationale Strategy
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Will it deliver in its current sub-ideal form?

Fig 14 - Standard rate of VAT in high income and Emerging Market Economies

Source: Report of the CEA Panel on GST rates, RCML Research

Key recommendations
RNR and rate structure: The CEA-led panel has recommended a RNR of 15-15.5%. It
also proposes a three-rate structure with a low, standard and high rate.
Fig 15 - Committees estimates of RNR and GST rates
Rate on precious Low rate Standard rate (goods High/Demerit
RNR
metals (goods) and services) rate(goods)
6 16.9
Preferred 15 4 12 17.3 40
2 17.7
6 18
Alternative 15.5 4 12 18.4 40
2 18.9
Source: Report of the CEA Panel on GST rates, RCML Research

Exemptions: The Panel has recommends that:

o The exemptions list be narrow, restricted to a few goods, that are merit goods
which feature prominently in the consumption basket of the poor (such as food
items, especially cereals, pulses, edible oils, vegetables)

o Exemptions should also be confined to final goods because taxes on

intermediates are in any case reclaimable as input credits

o Exemptions must be common across the Centre and States

o Precious metals not be exempted
o Area-based and CVD exemptions be phased out.
Exemption threshold: The Panel suggests that exemption thresholds be raised to
minimise burden on small taxpayers and achieve social objectives. It proposes a
common threshold of Rs 2.5mn for goods and services.

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Fig 16 - Exemption thresholds

Current indirect tax regime Proposed under GST
Goods Services Goods and Services
Rs 15mn; exports and exempted goods
Centre Rs 1mn Rs 2.5mn combined, with no exemptions
exempted from threshold
States Rs 0.5mn Rs 1mn Not applicable Rs 2.5mn combined, with no exemptions
Source: Report of the CEA Panel on GST rates, RCML Research

Other proposals

The GST rate should not be put in the Constitution

The 1% additional levy on inter-state trade be removed

Alcohol should be included in the law while petroleum should not be exempted

The band given to states to fix SGST rates should be reassessed

While these recommendations do carry weight to the extent that state government
representatives were also consulted in the exercise, the final GST model will be the
prerogative of the GST council.

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GST Channels of impact

1. Tax rate differential between the current and GST regime

a. Prices of goods to decline: The Centre levies excise duty at 12.5% and most States
levy sales tax at around 12-14% on goods. Since both taxes cannot be offset against
each other (leading to a tax on tax), the net indirect tax burden on the consumer
works out to ~24-26%. Besides, the CST and entry taxes are levied in the case of
inter-state trade, which also cannot be offset against the excise duty or the VAT. So
the cascading effect is higher in such cases leading to a higher indirect tax burden of
~29-30%.

If the GST is levied at 18% (in line with the CEA panels recommendations), the final
price for the consumer would come down (Fig. 17, 18) owing to a lower tax incidence
and the absence of a tax-on-tax due to a seamless flow of credits across the value
chain. Besides, the IGST mechanism would also facilitate full tax credit transfers
across states.
Fig 17 - GST on trade within a state
Current regime GST regime
Input Manufacturer Input Manufacturer For intra-state trade, a GST levy of 18%
Value Added 1,000 Value Added 1,000 would lead to consumer savings of
Rs 201. Even at a GST rate of 25%, the
Excise (@12.5%) 125
consumer would save Rs 117
Total 1,125 CGST (@9%) 90
VAT(@12.5%) 141 SGST (@9%) 90
Invoice 1,266 Invoice 1,180
Output Manufacturer Output Manufacturer
Cost of goods 1,000 Cost of goods 1,000
Value Added 100 Value Added 100
Total 1,100 Total 1,100
Excise (@12.5%) 138
Total 1,338 CGST (@9%) 99
VAT (@12.5%) 167 SGST (@9%) 99
Invoice 1,505 Invoice 1,298
Dealer Dealer
Cost of goods 1,338 Cost of goods 1,100
Value Added 100 Value Added 100
Total 1,438 Total 1,200
CGST (@9%) 108
VAT(@12.5%) 180
SGST (@9%) 108
Invoice 1,617 Invoice 1,416
Savings for final consumer 201
Source: RCML Research

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Fig 18 - GST on inter-state trade (Manufacturers located in state X, dealer in state Y)

Current Regime GST Regime
Input Manufacturer Input Manufacturer
Value Added 1,000 Value Added 1,000
Excise (@12.5%) 125
Total 1,125 CGST (@9%) 90
VAT(@12.5%) 141 SGST (@9%) 90
Invoice 1,266 Invoice 1,180
Output Manufacturer Output Manufacturer
For inter-state trade, a GST levy of 18%
Cost of goods 1,000 Cost of goods 1,000
would lead to consumer savings of
Value Added 100 Value Added 100 Rs 252
Total 1,100 Total 1,100
Excise (@12.5%) 138
IGST (@18%) 198
Total 1,338
CST (@2%) 27
Additional levy (@1%) 11
Entry tax (=Rs.30) 30
Invoice 1,394 Invoice 1,309
Dealer Dealer
Cost of goods 1,394 Cost of goods 1,111
Value Added 100 Value Added 100
Total 1,494 Total 1,211
CGST (@9%) 109
VAT(@12.5%) 187
SGST (@9%) 109
Invoice 1,681 Invoice 1,429
Savings for final consumer 252
Source: RCML Research

b. Prices of some currently exempted goods may rise: The prices of goods that are
currently exempt from central excise duty or sales tax (or both) or are subject to
concessional VAT/excise rates are set to increase if these are not exempted from the
GST. The CEA has recommended that the number of exemptions be lowered,
implying that some of the items that were currently exempt will come under the GST
purview.
Fig 19 - List of items exempted from VAT (not exhaustive)
Agricultural implements manually operated or animal driven Fresh vegetables & fruits

Aquatic feed, poultry feed and cattle feed Goods, except kerosene oil, sold through PDS

Books, periodicals and journals Gur, Jaggery and Rub gur

Bread except pizza bread containing any type of fruit or vegetable. Handicrafts, household articles made of brass and bell metal

Bullock cart Meat, fish, prawn, and other aquatic products

Coarse grains other than paddy, rice and wheat Newspaper

Curd, Lussi, butter milk and separated milk Organic manure.

Paddy, rice, wheat, pulses, flour, atta, maida, suji, besan and
Electrical energy
sattu.

Fire wood Raw jute

Fresh garlic and ginger Raw wool

Fresh milk and pasteurised milk Salt

Fresh plants, saplings and fresh flowers Sugar manufactured or made in India, misri and batasa
Source: RCML Research

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 GST Rate, Structure & Rationale Strategy
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Fig 20 - Goods taxable at 4% VAT (not exhaustive)

Agricultural implements not operated manually or not driven by
Flour, Atta, Maida, Suji, Besan and Ravva
animal

Wheat, Paddy, Rice, Jute, Oilseeds and all kinds of dals and pulses Electrodes including welding electrodes and welding rods

Vegetable Oils including solvent oils and Coconut Oil Ferrous and non-ferrous metals and alloys

All intangible goods including copyright, patent, rep license, DEPB Fibres of all types and fibre waste

Bearings of all kinds Hand Pumps, parts and fittings thereof

Bicycles, tricycles, cycle rickshaws & parts and accessories thereof Kerosene sold through public distribution system

Bitumen Ores and minerals

Branded bread Paper of all kinds and news print

Bulk Drugs Processed and branded salt

Centrifugal, monobloc and submersible pumps Printed material like diary, calendar, etc

Coffee beans and seeds Readymade Garments

Chemical fertilizers, Pesticides, Insecticides, fungicides, herbicides,

Rail coaches, engines and wagons
weedicides and plant protection equipment

Industrial cables, (High voltage cables, XI. PE Cables, Jelly filled

Tractors and Threshers, Harvesters and parts thereof
cables, optical fibre cables)

Transmission towers Ships and other vessels

Vanaspathi, Hydrogenated Vegetable Oil Silk fabrics other than Handloom silk fabrics

Coal Including coke in all its forms, but excluding charcoal Sports goods excluding apparels and footwear

Iron and steel Seeds

Source: RCML Research

Fig 21 - Goods taxable at 1% VAT (not exhaustive)

Bullion and Specie
Articles and jewellery made of bullion or specie or both and jewellery embedded with precious stones and
semi-precious stones and gold coated or gold covered jewellery
Precious stones, viz. diamonds, emeralds, rubies, and sapphires, and semiprecious stones and pearls
Source: RCML Research

c. Negative impact on services: Under the current tax system, taxation of services is
under the ambit of the Centre, with a service tax rate of 14%. Post GST, the States
will also have the power to tax services. While this would widen the tax base for
States, it would lead to a higher tax rate (18% proposed GST rate) and push up prices
of services, hurting demand. Higher taxes could also lead to under-invoicing and
generation of black money.

It is not yet clear if services under the negative list or services which are currently
exempted (such as education, medical and health services) would be taxed under
GST. If these are taxed, their final prices would rise. However, they will have some
relief coming from the availability of input tax credits.

Currently, although these services are not taxed, they are not zero-rated either; they
cannot claim refund of inputs (excise duty paid on goods and services tax paid on
services) and those remain stranded costs for them. So costs would decline and
providers would be able to partially offset the tax incidence by lower pre-tax prices.

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Fig 22 - List of services exempted from service tax (not exhaustive)

Health care services by a clinical establishment, an authorised medical practitioner or para-medics
Legal services provided by an individual as an advocate or a partnership firm of advocates
Auxiliary educational services and renting of immovable property by educational institutions in respect of education
Training or coaching in recreational activities relating to arts, culture or sports
Serving of food or beverages by a restaurant, eating joint or a mess, other than air-conditioned restaurants and restaurants with license to
serve alcoholic beverages
Services provided by an educational institution to its students, faculty and staff
Transportation of certain goods (agricultural produce, foodstuff, fertilisers, newspapers, etc) by road/rail/vessel
Source: RCML Research

Fig 23 - Services on the negative list (not exhaustive)

Services relating to agriculture such as supply of farm labour, renting/leasing of agro machinery or vacant land, storage or warehousing of
agricultural produce, etc.
Selling of space for advertisements in print media
Admission to entertainment events or access to amusement facilities
Transmission or distribution of electricity by an electricity transmission or distribution utility
Pre-school education and education up to higher secondary school
Services by way of renting of residential dwelling for use as residence
Trading of goods
Betting, gambling or lottery
Source: RCML Research

d. Exports to get a boost: Since GST is a tax on consumption (destination-based),

exports would be zero-rated, i.e. export prices would not include any taxes.
Currently, exports are reimbursed for central indirect taxes (excise and customs
duties) but dont get full offsets for CST and certain state-level taxes such as entry
taxes and octroi. Post GST, this non-rebated indirect tax induced distortions would
be removed, enhancing competitiveness of Indian exporters.

Basic Custom Duty will continue to there under GST system. However, the additional
custom duty in lieu of CVD /Excise and the Special Additional Duty (SAD) in lieu of
sales tax/VAT will be subsumed in the import GST. Both CGST and SGST will be levied
on import of goods and services into the country. The incidence of tax will follow the
destination principle and the tax revenue in case of SGST will accrue to the State
where the imported goods and services are consumed. Full and complete set-off will
be available on the GST paid on import on goods and services.

2. Better operational efficiency due to improvement in supply chains

India has an intricate web of checkposts in place across and within States, which act as
physical barriers to trade in the country. Since the GST subsumes most indirect taxes, the
need for reconciliation at state borders would reduce post GST implementation. This
could lead to a seamless movement of goods across/within States, thereby reducing
logistics costs.

As per the World Banks India Development Update released in October14, the cost of
logistics is relatively high in India, and ranges from over 10% of net sales for auto
components to over 14% for electronics higher than employee, power & fuel and R&D
costs put together. As against this, best-practice global benchmarks for logistics costs are
~3% of net sales for auto components and ~4 % for consumer durables.

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Fig 24 - Logistics vs. other costs for manufacturing firms in India

Costs as a % of net sales (data for 2011-12)
Compensation of Power & Research & Logistics Sample size
Employees Fuel Development (Estimated) (69)
Logistics costs in India range from 10%
Auto Components 7.1 3.7 0.5 10.4 18 of net sales for auto components to
Textiles 6.2 6.8 2.4 13.3 18 over 14% for electronics
Electronics 11.8 1.8 0.1 14.1 17
Heavy Engineering 8.6 1.1 1.1 12.2 16
Source: RCML Research, World Bank

The report also notes that most transportation in India is by truck, but hard road
infrastructure is just one of the many constraints for shipping goods. Of the 69 firms
surveyed, 36% felt that State border check-post clearances were the major reason for
freight delays.
As per the World Bank, halving the
delays due to road blocks, tolls and
The World Banks study suggests that the average speed of a truck on a highway is just
other stoppages could cut freight times
~20-40km/hour and trucks travel just 250-300kms per day in India. This raises costs due by ~30% and logistics costs by 40%
to higher inventories and locational inefficiency (locating close to suppliers/customers
instead of low-cost locations in terms of rent).
Fig 25 - Average distance travelled by a truck Fig 26 - Only 40% of the total trip time is spent driving
(Kms/day)
Driving
1,200
Driving Checkposts
1,000 40%
Other official stoppages
800
Repairs en route
600
Fueling en route
400
Rest and meals
200
Traffic hurdles
0
USA Australia Brazil World India Other halts
Average

Source: RCML Research, World Bank Source: RCML Research, World Bank

The World Bank estimates that as much as 60% of the journey time, the truck is not
moving, with 25-30% of the time spent at checkposts, state borders and city entrances.
Thus, regulatory impediments increase truck travel time by a quarter as over 650
checkpoints slow freight traffic at state borders.

GST implementation could reduce these logistics issues, leading to lower travel time
which could lower inventory stocking needs. Further, the transformational impact of GST
could be enhanced by focused government efforts towards systematic dismantling of
inter-state check-posts. As per the World Bank report, halving the delays due to road
blocks, tolls and other stoppages could cut freight times by ~30% and logistics costs by
40%. This would translate into a gain of ~3-4% of net sales for key manufacturing sectors.

Implementation of the GST could also lead to a consolidation of warehousing facilities.

Currently, firms have set up warehouses across states since they have to pay central sales
tax and other entry taxes for intra-state transport of goods. However, in the GST regime,
tax considerations will not be the driving factor firms will be able to create centralized
warehouses as hubs to service multiple states.

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3. Organized and unorganised price-competitiveness differential

Under the GST regime, input tax credit will be available for all taxes paid earlier in the
value chain. This will incentivize compliant tax-paying firms to source inputs from other
compliant firms, failing which they will not get the input tax credit resulting in stranded
costs. Thus, firms would require evidence of compliance from the preceding links in the
value chain in order to claim the required set-offs. This in-built self-policing incentive
could push unorganised players to comply, thereby bringing them into the tax net.

Thus, the price competitiveness of unorganised entities is likely to deteriorate, resulting

in narrowing of the price differentials. This is likely to lead to accelerated topline growth
and market share gains for organised players, particularly those operating in sectors
where unorganised players form a large part of the market.
Fig 27 - Share of unorganised players across sectors
Sectors % Share
Footwear 65-70%
Tiles 50%
Artificial leather 50%
Pipes 45%
Construction chemicals 50%
Stabilisers 65%
Motor Pumps 50-55%
Water Heaters 46%
Fans 25-30%
UPS 60%
Solar water heaters 35%
Bearings 40%
Wires and cables 30-40%
Source: RCML Research

4. Impact on Centre-State Finances

A Revenue Neutral Rate by definition implies that the aggregate tax revenue is not going
to be affected. However, the distribution of revenues is likely to change producer states
are likely to lose, while consumer states and states with larger service sectors are
expected to gain in the initial years.

Destination based-tax to hurt producer states: Since GST is destination-based, it implies

that the state in which the final consumer of a good/service is located will take revenue
from the tax levied on that good. Thus, large producer states would stand to lose revenue
the key reason why Gujarat, Maharashtra and Tamil Nadu did not want to come on
board the GST regime. Large consumer states like Uttar Pradesh, Bihar and West Bengal
would be the top gainers in terms of tax revenue.

1% additional levy, compensation to pacify producer states: The Centre enticed states
via the 1% additional levy, an origin-based tax. It also agreed to compensate all their
losses for five years post GST implementation, although it is still not clear how the
shortfall would be calculated. During the transition to state VAT, the three top annual
growth rates during the last six years were averaged and used to project revenues, which
was then compared with the actual revenue to calculate the shortfall. However, the CEA
panel has recommended against such an origin based levy, as it goes against the basic
principle of the GST.

14 December 2015 Page 19 of 25

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States with large service sectors to gain: Once the GST comes into force, States will be
able to tax services. Thus, the tax base for all states will widen this will partially offset
the revenue losses that producer states will have on goods due to the destination-based
nature of GST. However, states with a larger services sector vis--vis manufacturing
sector would gain more. Example would be states with large tourism revenue like Kerala
and Goa.
Fig 28 - Sectoral share in NSDP (%)
Manufacturing Services
Gujarat 20.6 45.9
Maharashtra 15.2 64.6
Punjab 14.0 48.6
Haryana 13.7 54.7
Tamil Nadu 13.2 63.0
Karnataka 11.7 62.4
Rajasthan 10.9 44.2
Uttar Pradesh 8.6 51.9
Chattisgarh 7.1 45.2
Madhya Pradesh 6.6 42.4
West Bengal 6.3 61.8
Andhra Pradesh 5.9 53.7
Kerala 5.9 66.8
Orissa 3.8 52.3
Bihar 3.0 60.6
Source: RCML Research, CSO

Reduced fiscal autonomy of states: As per CAB, the GST rate will be uniform across the
country and states would have a limited amount of flexibility to vary the SGST rates
within a narrow band. Such harmonization would reduce the fiscal autonomy of the
States to fix rates. At the same time, GST implementation (in its current form) will not
take away fiscal powers completely as petroleum has been exempted and alcohol kept
out these two items account for ~30% of indirect revenue of states.

Revenue shortfall to hurt Centre: Given that the tax base for the Centre and States
would be common post GST implementation, any shortfall in revenues would be also be
common. Thus, fund transfers to the States would imply a fall in the Centres revenue
this could pose a risk to the central governments fiscal targets.

4. Inflation impact
The very idea of a Revenue Neutral Rate may imply that the GST should, in principle, have
no aggregate impact on inflation and price level. However, this need not be always true,
especially if the weights of commodities in CPI consumption basket are different from
their contribution to the indirect tax pool. Lets look at the current tax structure of the
CPI consumption basket.

Large part of CPI basket not taxed: The CEA-led panel estimates that average effective
current tax rate on CPI consumption basket is 10.4%. If we exclude alcohol, petrol and
diesel, this effective rate drops to 7%. Further, a large part of the consumption basket is
either exempted or taxed at a very low rate. For example, 75% of the CPI is exempted
from excise and 47% of the CPI is exempt from sales tax. Besides, 32% of the CPI is taxed
at a low rate, 15% is taxed at a normal rate and 4% is taxed at a high rate (this includes
petrol, diesel and alcohol items kept out of GST). Excluding taxed items that are to be
kept outside the GST purview, 54% of the CPI consumption basket would be GST exempt.

14 December 2015 Page 20 of 25

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No impact on food inflation: Food has the largest weight in the consumer basket, at
~ 40%. Food items are exempt from most taxes in the current regime and these
exemptions are expected to continue post GST. The CEA-led panel has also
recommended that exemptions on food items continue, as they affect the poor more.
Fig 29 - Food accounts for a high weight in CPI

Others
9%
Health
6%
Education
4%

Transport, Food & beverages

communication 46%
9%

Fuel & light

7%

Housing
10% Tobacco & intoxicants
Clothing
2%
7%

Source: RCML Research, MOSPI

Hike in tax rate on services unlikely to significantly affect CPI: Services account for 22-
23% of the CPI basket. Housing has the highest weight within services (~45%), which
predominantly comprises house rent receipts (weight in CPI: 9.51%). Currently, no service
tax is levied on house rent. Even among the remaining components, multiple services
across the healthcare, education and transport and communication segments escape
taxes. Thus, even as the tax incidence on services generally goes up due to a higher tax
rate, because of continuation of exemptions on most of these services in the basket, it is
unlikely to affect the CPI significantly.
Fig 30 - Share of services in CPI (%)
Services 22.37
Housing 9.83
Transport and communication 4.59
Healthcare 1.83
Entertainment 1.07
Education 3.52
Others 1.53
Source: RCML Research

Overall impact on CPI: The impact on other items in the CPI basket will depend on the
tax incidence post GST vis--vis current incidence, whether producers pass on benefits of
lower rates and the pricing power of producers in passing on higher taxes in case of
increase in taxes and continuation/removal of exemptions.

The CEA panel would like us to believe that the overall impact of GST on CPI inflation is
likely to be minimal, given the high share of food in the basket. However, experiences in
a number of economies like Australia, New Zealand and Canada shows that GST
implementation led to a step increase in prices, boosting inflation in the first year. In
India, given that prices have been more inflexible downwards, probability of adverse
impact on prices is higher. This requires setting up of robust monitoring and rectifying
mechanisms to be in place well ahead of GST implementation, especially for prices of
sensitive essential commodities.

14 December 2015 Page 21 of 25

 GST Rate, Structure & Rationale Strategy
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Fig 31 - 2011 UPA Bill vs. 2014 NDA Bill

Constitution (115th Amendment )Bill, 2011 Constitution (122nd Amendment) Bill, 2014

Only alcohol for human consumption. Petroleum products

Alcohol for human consumption and petroleum products
(Petroleum crude, high speed diesel, motor spirit, natural gas,
Exclusions (Petroleum crude, high speed diesel, motor spirit, natural
aviation turbine fuel) to be covered under the law, but GST to
gas, aviation turbine fuel).
be levied at a later date

Tax (up to 1%) on the supply of goods in inter-state trade will

Additional Tax (on
No additional levy on inter-state trade be given to States from where supply originates, for a period
inter-state trade)
of two years or more

Compensation to
States for revenue No provision in the bill to provide compensation to the States Provide for compensation to States for 5 years.
losses

Also includes model GST laws, principles of levy and place of

GST Council Recommendations on taxes to be subsumed, exempted
supply, apportionment of IGST, special rates to raise
Functions goods and services, threshold limits, rates.
additional resources during natural calamity or disaster

By voting, with a majority of not less than 3/4th weighted votes

GST Council
By consensus of all members present of the members present, wherein 1/3 weightage to Centre, 2/3
Decisions
to States.

Set up Dispute Settlement Authority to settle disputes No Dispute Settlement Authority. GST Council to decide upon
Dispute Resolution
between Centre and States. the modalities to resolve disputes
Source: RCML Research

Fig 32 - History of the Goods and Services Tax in India

Vajpayee government introduces the GST and sets up Empowered Committee to design the GST model and oversee the IT
2000 back-end preparedness for its rollout

The Kelkar Task Force on implementation of the FRBM Act, 2003 suggests a comprehensive Goods and Services Tax
July, 2004 based on VAT principle

February, 2006 Finance Minister, P. Chidambaram introduces GST in the budget for FY07 and proposes to rollout GST by 1st April, 2010

Announcement to set up an Empowered Committee of State Finance Ministers (ECSFM) to prepare roadmap for introducing
February, 2007 GST

May, 2007 Joint working group set up by ECSFM with finance ministry officials

November, 2007 Joint working group presents its views to ECSFM

April, 2008 ECSFM submits report to the government

November, 2009 ECSFM, based on inputs from Centre and States, releases First Discussion Paper on GST in India

February, 2010 Finance Minister, Pranab Mukherjee proposes to roll out GST by April, 2011 in the budget for FY11

February, 2011 Finance Minister, Pranab Mukherjee proposes to roll out GST by April, 2012 in the budget for FY12

March, 2011 Finance Minister, Pranab Mukherjee introduces Constitution (115 Amendment) Bill,2011 to introduce GST in constitution

May, 2014 The constitutional amendment bill lapses with the dissolution of the 15th Lok Sabha

December, 2014 Finance Minister, Arun Jaitley introduces Constitution (122nd Amendment) Bill,2014 to introduce GST in constitution

February, 2015 Finance Minister, Arun Jaitley proposes to roll out GST by April, 2016 in the budget for FY16

May, 2015 Lok Sabha passes the Constitution (122nd Amendment) Bill,2014

May, 2015 Constitution (122nd Amendment) Bill,2014 referred to a Select Committee of Rajya Sabha

July,2015 Rajya Sabha Select Committee submits report endorsing majority of proposals. Congress, AIADMK and left parties oppose
Source: RCML Research

14 December 2015 Page 22 of 25

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This report is only for distribution to investment professionals and institutional investors.
Analyst Certification
Each of the analysts identified in this report certifies, with respect to the companies or securities that
the individual analyses, that (1) the views expressed in this report reflect his or her personal views
about all of the subject companies and securities and (2) no part of his or her compensation was, is
or will be directly or indirectly dependent on the specific recommendations or views expressed in this
report.
Analysts and strategists are paid in part by reference to the profitability of RCM.
Stock Ratings are defined as follows
Recommendation Interpretation (Recommendation structure changed with effect from March 1, 2009)
Recommendation Expected absolute returns (%) over 12 months
Buy More than 15%
Hold Between 15% and 5%
Sell Less than 5%
Expected absolute returns are based on the share price at market close unless otherwise stated.
Stock recommendations are based on absolute upside (downside) and have a 12-month horizon. Our
target price represents the fair value of the stock based upon the analysts discretion. We note that
future price fluctuations could lead to a temporary mismatch between upside/downside for a stock
and our recommendation.
Stock Ratings Distribution
As of 1 December 2015, out of 175 rated stocks in the RCM coverage universe, 107 have BUY
ratings (including 5 that have been investment banking clients in the last 12 months), 53 are rated
HOLD and 15 are rated SELL.
Research Conflict Management Policy
RCM research has been published in accordance with our conflict management policy, which is
available here.
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research as only a single factor in making their investment decision.
Any reference to a third party research material or any other report contained in this report represents
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Other Disclosures by Religare Capital Markets Limited under SEBI (Research Analysts)
Regulations, 2014 with reference to the subject companies(s) covered in this report:
Religare Capital Markets Limited (RCML) is engaged in the business of Institutional Stock Broking
and Investment Banking. RCML is a member of the National Stock Exchange of India Limited and
BSE Limited and is also a SEBI-registered Merchant Banker. RCML is a subsidiary of Religare
Enterprises Limited which has its various subsidiaries engaged in the businesses of commodity
broking, stock broking, lending, asset management, life insurance, health insurance, wealth
management, portfolio management, etc. RCML has set up subsidiaries in Singapore, Hong Kong,
Sri Lanka and Middle East to render stock broking and investment banking services in respective
jurisdictions.
RCMLs activities were neither suspended nor has it defaulted with any stock exchange authority with
whom it has been registered in the last five years. RCML has not been debarred from doing business
by any Stock Exchange / SEBI or any other authority. No disciplinary action has been taken by any
regulatory authority against RCML impacting its equity research analysis activities.
RCML or its research analyst or his/her relatives do not have any financial interest in the subject
company.
RCML or its research analyst or his/her relatives do not have actual/beneficial ownership of one per
cent or more securities in the subject company at the end of the month immediately preceding the
date of publication of this research report.
14 December 2015 Page 24 of 25
RESEARCH DISCLAIMER

Research analyst or his/her relatives do not have any material conflict of interest at the time of RCML may from time to time solicit or perform investment banking services for the company(ies)
publication of this report. mentioned in this report.

Research analyst has not received any compensation from the subject company in the past 12 RCML or its associates may have material conflict of interest at the time of publication of this
months. research report.

RCML may have managed or co-managed a public offering of securities for the subject company in RCMLs associates may have financial interest in the subject company. RCMLs associates may have
the past 12 months. received compensation from the subject company in the past 12 months. RCMLs associates may
hold actual / beneficial ownership of one per cent or more securities in the subject company at the
RCML may have received compensation from the subject company in the past 12 months. end of the month immediately preceding the date of publication of this research report.

Research analyst has not served as an officer, director or employee of the subject company. RCM has obtained registration as Research Entity under SEBI (Research Analysts) Regulations,
2014.
RCML or its research analyst is not engaged in any market making activities for the subject company.

Digitally signed by SHANKAR JAY

Date: 2015.12.14 07:32:37 +05'30'

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