GST framework and its impact on retail investment and operating structures

GST targets to minimise the hitches in double taxation: primarily eradicating cascading tax and smoothing the flow and structure to make it more seamless and organised.
Goods and Services Tax

Goods and Services Tax (GST) is a comprehensive tax levied on manufacture, sale and consumption of goods and services at a national level. Under GST there will be no difference between goods and services. It tries to eliminate indirect taxes and mitigate cascading or double taxation issues and leads to a common national market, with elimination of state boundaries.

The execution of GST in India emerges from the complications of the current tax system of the country. GST targets to minimise the hitches in double taxation: primarily eradicating cascading tax and smoothing the flow and structure to make it more seamless and organised. It will assist in making full input tax credit possible at Central and State level. GST would also help to restructure interstate transactions. It will focus on streamlining the taxation methods at different levels across all the states in the country and between the states and central government. Administrative costs would get condensed – that would be one of the merits. A level playing field would be created with a common national market.

It also eases the launch of start-ups and will make business relatively easier. In a long term perspective, this will lead to a rise in the economic growth of the country. Most importantly, it will strengthen relations with multinational companies and aid in increasing Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII).

Looking at the current picture of the India retail sector, the introduction of GST will act as a benefit at different stages of the value chain. To begin with, the procurement of raw materials and movement of goods would become less cumbersome, which will open the gates for more suppliers /vendors to merge.

Following this, a wider base of distributors would be available as state boundary paperwork will not be a hurdle, resulting in to a better access and low transportation costs. A favourable environment for a supply chain would reduce in transit inventory, further reducing the working capital requirement. Adding to this, simplified taxes and availability of input tax credits can help fetch better margins. GST will also avoid the red tape and documentation on collection and submission of various forms.

A major pain point for the industry - ‘Rentals' is one of the main costs of retailing industry and it attracts a service tax at 14.5 per cent. Currently, the retailers cannot set off these costs like the other industries. This, they feel, is an additional cost of operating in this industry which is unfair to them. Under GST, taxes on services would be available for set off against taxes on goods. Thus, the retailers would be positively impacted. To conclude, the key benefits of the GST will be the aid where the retailers create supply chain methods based on transportation models rather than taxation models.

Impact on price sensitive textile and apparel industry
To sustain the competitiveness of the Indian T&A industry and help the industry grow and achieve its potential target, it is very important to support this industry by levying a lower rate of GST as currently fabrics do not attract any tax (both Excise and VAT) and readymade garments attract only VAT.

Authored by: Sanjay Vakharia, COO, Spykar Lifestyles Pvt Ltd.

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