Home Retail The impact of GST on the retail sector in India

The impact of GST on the retail sector in India

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The Rajya Sabha on Wednesday voted to pass the Constitution amendment bill on GST, the most comprehensive tax reforms the country has witnessed since Independence. Once implemented, the Bill will convert the country into a unified market, replacing most indirect taxes and subsuing all those into a single tax regime.

The impact of GST on the retail sector in India
With the implementation of GST, which is likely to be done by April 2017, three sectors will benefit the most: retail, FMCG and consumer companies and logistics business.

It is a comprehensive tax levied on manufacture, sale and consumption of goods and services at a national level. The Bill’s draft does away with additional tax on the movement of goods across state boundaries. States will be compensated for revenue losses in the first five years of implementation of and a mechanism has been put in place to decide on conflicts between states, if any.

Read: India Inc stakeholders react to passage of GST Bill

With the implementation of GST, which is likely to be done by April 2017, three sectors will benefit the most: retail, FMCG and consumer companies and logistics business. In the retail sector, the implementation means a seamless integration of goods and service transaction across the states. It will have benefit at different stages of the value chain.

First, the procurement of raw materials: movement of goods would become less cumbersome, which opens 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 to better access and low transportation costs. A favourable environment for a supply chain will reduce in transit inventory that will further reduce the working capital requirement. Simplified taxes & availability of input tax credits can also help fetch better margins.

Along with saving costs at back-end, GST implementation will be an answer to the major pain point for the industry -Rentals. Rentals are one of the main costs of retailing industry and it attracts 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.

Read: Goods and Services Tax: Frequently Asked Questions

For instance, Future Group’s CEO, Kishore Biyani feels that the Group could save Rs 300 cr in rental tax post GST. “We are one of the largest rent payers in ton service tax on rentals we che country with Rs 2,200 cr rents per year. So if I get set off an save minimum Rs 300 cr (annually) on service tax on rentals,” Biyani was quoted as saying in an interview with ET Retail.

President & CEO Walmart India, Krish Iyer said, “Passing of the today in Rajya Sabha is an extremely progressive step and long awaited one. GST is one of the critical tax reforms which has potential to create one single market in India for goods & services and will boost country’s economy significantly.”

“Implementation of GST will reduce transaction cost of doing business, also reduce food wastage and bring down prices. Hence I am confident that it will not only bring relief to the consumers, but also help retail sector and building supply-chain efficiencies in India in a big way. This is thus a win-win legislative reform for all,” he added.

In conclusion, 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.