GST mop-up worries may be premature, but they are negative for markets: UBS

With the ongoing correction in the markets indicating a possible investor uneasiness over the shortfall in GST revenue, a foreign brokerage on Thursday said such concerns are premature and full-year tax collections could still be in line with the budgeted target.

"Our calculations of potential monthly GST revenue in FY18, assuming 8 per cent year-on-year growth and seasonality of monthly indirect tax revenue, suggest that GST collection is tracking just fine," Swiss brokerage UBS Securities said in a report today.

The report further said, "while we've been more cautious than most investors over the last three years on the recovery in growth and earnings, we believe the concern over a big revenue shortfall is overdone."
 

UBS noted that about Rs 65,000 crore of tax refunds claimed by exporters post-GST are reportedly pending, raising concerns that actual GST revenue may be lower than the Rs 95,000 crore reported.

The government has clarified that for 66 per cent of the value of exports, exporters opted for the 'duty drawback scheme' (they did not pay taxes on inputs) instead of refund mechanism, which implies no blockage of working capital.

The remaining exporters used the refund mechanism, but the waiting period may initially be longer under GST, hurting near-term exports due to working capital issues.

Besides, concerns have also been raised that the 'transition credit claims' of Rs 65,000 crore (on taxes paid pre-GST implementation), which again was taken to imply lower net revenue than the reported Rs 95,000 crore.

The report noted that the government has clarified that Rs 65,000 crore was the outstanding balance of credit, which compares favourably with the Rs 1,27,000 crore closing balance as of end June and Rs 95,000 crore was actually paid in cash, in addition to availing of credit.

The report noted that the even the refund and credit claims are deducted, full-year revenue could still be in line with or very near the budgeted amount.

"GST is less than 40 per cent of overall for Central and state tax revenues and less than 30 per cent of the overall receipts combined," the report said, adding so far in 2017 tax collection ex-GST is tracking fine and "does not suggest broader macro deterioration".

Despite all these, it sees a steep discount for Nifty at 9,000 and upside scenario of 10,000 for December. The brokerage said the risk-reward for the market remains unattractive.