GST is no ordinary tax reform. It is one of a kind reform, which is poised to change the scenario of taxation in the country, and legitimately its effects on the retail industry must be considered.Retail industry contributes about 20% of India's GDP. The Indian retail market is estimated to be US$600 billion and one of the top-five retail markets in the world by economic value. India has one of the fastest-growing retail markets in the world and is projected to reach $1.3 trillion by 2020. With this backdrop in mind we will try to understand what GST means for Indian Retail Industry.
First of all let’s accept the fact that the proposed form of GST is MODIfied version of present indirect tax system with multiple tax rates and multiple governing authorities. Government has clearly stated that while deciding the tax rates they have considered “Tax Neutral” principle in mind.GST will lead to a seamless integration of goods and services transaction across states and will positively impact various components in the retail value chain at different stages.
Listed below is the impact of GST on various segment of Retail business.
· Uniform definition of HSN (Harmonized System Nomenclature) is incorporated to classify goods for taxation.
· Government has given various exemptions / relaxations for small retailers for ease of doing business. This will ensure that business remains as usual for large number of retailers.
· For big retailers, the entire processes will be largely driven through automation and in the longer run will bring more transparency.
· With GST there are rules related to taxation of free items etc., retailers may modify their sales promotions accordingly.
For various other concerns, which are yet to be clarified, will be resolved as and when it comes, as government has been very proactive in taking up concerns of stakeholders.
2. Supply Chain & Procurement: GST gives an opportunity to bring in efficiencies for procurement and supply chain as it removes tax barriers for inter-state purchases. Since CST is abolished we will see more and more centralized purchases to take benefit for economy of scale. We will also see bigger warehouses equipped to manage larger transactions.
3. Reduced Tax: The tax rate varies from 0% to 28% for most of the goods under GST regime. If we consider all taxes under current system the rate will work out closer to 30% which includes excise duty, CST, entry tax, VAT and service tax on various activities like rental. So net effect of GST on retail business is positive from tax incidence point of view.
4. Impact on prices: GST provides for seamless input credit of various credits which was not available it will have positive impact on retailers cost and in the longer run the same will be passed on to the consumers.
Overall GST will bring in lot of transparency, efficiency and compliance in overall system, which will positively impact businesses, particularly retail.
The article has been penned down by Sharad Venkta, MD & CEO, Toonz Retail India Pvt Ltd.