India will adopt its most comprehensive indirect tax reform, the Goods and Services Tax (GST) – on July 1, 2017. GST will help remove tax barriers between states, creating a single market. The roll-out will replace a plethora of cascading central, state, interstate and local taxes with a single, nationwide, value-added tax on goods and services.
And retailers have started the discounts early, in a bid to clear the existing stocks before the new tax regime begins.
The reason for the steep discounting is the simple fear of impending losses. When retailers buy products, they get tax credit, which can be adjusted against the tax they need to pay when they sell the said goods. Post-GST, the tax they will need to pay on electronics will go up, while their tax credit for inventory they already have will remain the same. They will wind up paying this difference out of their own pocket and this means a loss.
There are also concerns over a lot of paperwork involved with existing stock as well as complex legal formalities.
The fear of chalking up losses has turned out to be an off-season bonanza for consumers with prices of electronic goods, apparel, footwear and accessories all being slashed by 40 – 60 per cent.
Who’s Ahead of the Curve
Flipkart has an ongoing a 9-day sale on fashion products from June 10 – June 18 to clear its inventories.
Products from around 50 brands, including Aeropostale, Vero Moda, Forever 21, Under Armour, Kenneth Cole, Crocs, Adidas are available on discounts in this sale.
Following Amazon and Flipkart’s sale on fashion and furniture last week, Paytm Mall has launched a pre-GST Sale, as merchants across India are clearing their existing stock to gear up for India’s biggest tax reform. The sale will host over 6,000 retailers across 500+ brands, with all major brand labels participating in the retail extravaganza.
“Items such as televisions, consumer durables, premium laptops and DSLRs are available at up to Rs 20,000 cashback, while products such as Bluetooth speakers, footwear and accessories will be sold at up to 50 per cent off + 25 per cent cashback. This sale has come at an opportune time for offline retailers who are looking to offload their entire inventory before the new tax rates become effective,” Paytm Mall said in a release.
White goods such as air-conditioners, washing machines and refrigerators fall under the 28 per cent GST bracket, against the current incidence of 21-23 per cent, inclusive of VAT and excise duty.
Apparel companies too are offering discounts as high as 50 per cent on their products, with flash sales offering retailers an opportunity to clear slow-moving inventory.
Sportswear brand Puma is offering an extra 10 per cent off on the flat 40 per cent discount while outfit-maker Allen Solly is presenting a buy-one-get-one free scheme to its customers. Levi’s is giving away two items free on the purchase of two, while Flying Machine is offering a discount of up to 50 per cent. Pepe Jeans and Peter England are running a buy-three-get-three offer.
Pantaloons has announced a ‘pre-GST Preview Sale’ from June 16 to June 18. Wills Lifestyle is also offering Buy 2 Get 1 on clothing. Brands such as Puma, Bata, ONLY, Jack & Jones, Vero Moda, Louis Philippe, Van Heusen, Benetton and US Polo are also luring customers with discounts.
The Consumer Wins
Even as companies such as Future Retail have been working with vendors and its partners to ensure “no disruption” in supply chain in the indirect tax regime, retailers are convinced that this sale is a one-off jackpot for consumers. This sale won’t happen once everyone is settled into the new GST routine by next year, they say. Whatever, the reason, the consumer has emerged the winner.