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India’s ‘landmark’ tax bill: what it means for investors

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India’s ‘landmark’ tax bill: what it means for investors

India’s adoption of the Goods and Services Tax Bill on August 3 will bring the country screaming into the 21st century and heralds a ‘landmark’ reform for Modi’s government.

That is according to Aaron Armstrong, investment analyst for Asia at EM boutique Alquity, where he works alongside Citywire A-rated manager Mike Sell.

His comments come as India’s parliament agreed to pass proposals that had been debated for almost a decade, a move some commentators have said is the most important reform since the country gained independence.

Armstrong said the goal of the GST is relatively straightforward. ‘The objective behind the GST, whilst the details have proved complex, is simple enough: unite India as an efficient common tax market for the first time.’

Currently operating under an ‘antiquated’ tax model, Armstrong said it will also ease the passage of multinationals operating in the country as they will no longer be subject to different legislation in different states.

‘The GST will bring India’s tax system into the 21st century. The onus for tax paying will be shifted to consumption, increasing the incentives to trade between states and making investments more profitable, with all tax payments being made through a single fully-automated, electronic platform.’

Most bullish bet

With the tax believed to be worth up to 2% of additional GDP growth-per-year once fully implemented, Armstrong said Alquity has never been more bullish on India across its dedicated Indian equity fund and its broader Asia strategy.

‘Our positions in Container Corporation of India and Gateway Distriparks, two logistics plays, will benefit from the surge in interstate trade,’ he said.

‘The new emphasis on taxation at the point of consumption will benefit our holdings in Voltas (air conditioning) and Astral Polytech (PVC pipes) by forcing the unorganised players in the market to begin paying tax, thus removing their long held unfair advantage over organised, tax compliant companies.’

While the funds are both seeking to tap growth in India’s domestic economy, Armstrong said the reform will send a strong message to Indian people and also investors worldwide.

‘The GST symbolises a key achievement for the Modi government and shows that the momentum of economic reform is building, and that the political system is beginning to function for the benefit and prosperity of the country.

‘GST is the flagship for reform in India, and it is sailing towards a pro-market, rapidly growing economy, and a wealth of exciting investment opportunities.’

The Alquity SICAV-Alquity Indian Subcontinent fund returned 36.8% in Indian rupee terms over the period since its launch in May 2014 to the end of July 2016. This compares with a rise of 20.5% by the Bombay Stock Exchange 100 Index over the same 27-month period.

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