How Will GST Impact on Indian Retail Business

One of the most comprehensive tax reforms of the country has ever seen, the GST bill has been on the trend of every economist and individual, who is likely to be affected by it.

The GST bill is been looking forward  to transform the country into a consolidated market, replacing most indirect taxes and merging all those into a single tax scheme.

With the all-general tax levied on manufacturing, sale and consumption of goods and services at the national level, the bill avoids extra  taxes on transportation of goods across state boundaries.

The depiction of the bill will also lead to a logical integration of goods and services transaction across states and will positively encounter various components in the retail value chain at different steps.

acquisition of raw material will be less cumbrous and tedious and it could also make space for newer suppliers and vendors to cater to the growing market. After that, a wide base of distributors would emerge, as the complexities associated with state-boundary paperwork will be eliminated, allowing better access and less travel costs.

Additionally, with reducing working capital requirements, the supply chain will reduce in transit inventory. In a nutshell, a simplified taxation system and availability of input tax credits also aids in fetching better margins.While these are some of the projected implications of GST, we believe that reality is a little more complex than it seems. While the larger players in retail and manufacturing will benefit significantly from this implementation, we would like to shed some light on certain softer yet complex matters.

Retail Push

while the execution of GST is saving costs at the back-end, it is also finding a major pain point in the retail segment – rentals. Retail, for ages, has been burdened by high rental costs, which incurs a service tax of 15% on rent payable. Unlike other industries, the retailers cannot set off these costs and view it as an additional expense that inconsiderately exists only in the retail sector. However, now under GST, taxes on services would be available to be set-off against taxes on goods, thereby positively impacting the retailers. Over and above that, other costs weighing the retailers down are countervailing duty (CVD) paid on import of goods, excise duty paid on goods manufactured in India, central state tax paid on inter-state procurement of goods and service tax paid on input services.

However, the GST charges on the aforementioned trades would be commendable. It completely eradicates the domino’s effect of taxes and could lead to reduction in effective tax cost for various products.

GST vs VAT

Here is a chart out what makes GST better than VAT. To start with, VAT is state-specific with a limit of Rs 10 lakh in turnovers, whereas, GST combines the market with a registration limit of Rs 20 lakh. Moreover, VAT is a TIN registration and GST is  a PAN registration.

Likewise, while GST comes with a smooth flow of input tax credit, CST on inter-state transactions comes with no input tax credit. Furthermore, VAT has no specific mode of payment, while in GST if payment surmount Rs 10, 000, one needs to make it through the electronic mode. Last but not the least, VAT has no rating system for a business, whereas, GST rating is based on timely filing of returns and payments.