• 22 Nov 2017
  • By baskaramoorthy
  • Share On [addtoany]

Impact of GST on the Retail Industry. Are you in sync?

The Goods and Services Tax (GST) reform in India is reaping benefits to retail, logistics and FMCG businesses. Analysts are expecting an increased growth in the retail market with total indirect taxes coming down, seamless input tax credit, and a more efficient supply chain as amongst the many other newly introduced changes under GST.

  1. More Convenience

Earlier, indirect taxes included many components like VAT, Octroi, CST etc. The multiplicity of these taxes has been replaced by GST, to a more simplified & uniform tax structure. Tax-free inter-state movement of goods required the issuance of “Form F”but under GST this requirement is now done away with. Similarly, newer compliances have been introduced for encouraging greater transparency and convenience to all.

  1. Lower Tax Burden
  • Reduced Tax
    Unlike the earlier 30% average tax on retail products, under the new GST the Government of India (GOI) has unveiled four tax slabs at 5%, 12%, 18% and 28% depending on the type of items and services; Possibility of reduced tax for retailers.
  • Improved Flow of Credit
    GST will be paid on procurement of goods and services, including on vat, service tax, import duty and so on. This will be available as input credit for adjustment against GST liability on the sale of goods. As the credit will flow through the entire supply chain, the impact of cascading taxes will be reduced to great extent.
  • Reduced non-recoverable import duties on procurement of foreign goods

Reduced taxes & input tax credits can also help retailers fetch better margins.

  1. Reduced Trade Barriers
  • Opportunity for gaining economies-of-scale by centralizing logistics and procurement
  • Almost 20 to 30 percent warehouses will operate in consolidation
  • Old supply chains will be re-designed to more efficient systems.
  • Waiting time at inter-city or inter-state check posts will be reduced.
  • Seamless transaction of goods and service across the states.

The burgeoning of markets and rising potential for doing business across geographical boundaries could be seen happening soon. According to a Deloitte report, “The Indian retail market is estimated to be more than US$ 600 billion and one of the top five retail markets in the world by economic value.” While GST is being seen as a favourable move both by Indian and Global retailers, on the flip side some aspects are:

  1. All Promotional Gifts will be taxed

Going forward, all samples, free gifts for promotional use will be liable to tax. Marketers will need to reconsider their marketing strategies aligned to the new GST.

  1. Higher GST for Luxury goods / FMCG / Consumer Durables

Though this could be inflationary, the Luxury brands certainly treat this as a demerit.

  1. Integrated Online Tracking System to keep tax evaders at bay
    This may negatively impact those businesses who worked on slim margins.

“GST poses a challenge to ECR imports with its multiple tax slabs”, stated Mr. Dinesh Bhatia, Director, Grandmaster Innovations Pvt. Ltd. Recalibrating the ECRs to accommodate various tax slabs is something they are contemplating with their China counterpart. Having said so, Mr. Bhatia also believes that GST has spurred growth in import and sale of PoS systems in certain retail segments. 

Next Steps:

Going forward, some critical strategic decisions will need to be made in order to stay compliant and benefit most from GST implementation.

  • Amend pricing policy to factor in promotions, discounts.
  • Re-designing of supply chain based on transportation model
  • Centralizing divisions by outsourcing to best vendors across nation
  • Modifying the invoicing methods.

Re-structuring of current systems to align with the requirements of a single tax regime.

The Bottomline:

All-in-all, GST is a progressive step to boost country’s economy by reducing transaction cost, bring down prices and reduce any sort of wastage in the supply chain and, an opportunity for retailers to pass on the benefits to their consumers.