How GST will impact Retail Business?



July 1st is the day. The revolutionary move by the Rajya Sabha to pass the constitutional amendment bill on GST will be rolled out on this day. The bill that is anticipated to redefine the country into a unified market, replacing all the indirect taxes, re-emphasizing on its famous slogan ‘One Country One tax’.

With GST transition soon to happen, three sectors will be benefitting the most: Retail, logistics and the FMCG & Consumer companies. Let us see 5 ways how the retail will have the advantage with GST

 

  • No more Cascading (tax-on-tax)

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In the current tax structure, most of the retail products are subject to 30 % indirect taxes on average. This includes excise duty, VAT, CST, service tax on warehousing, consulting and rent, Octroi and entry tax. The main impact of GST on retailers will be a significant reduction of the tax burden on the retailers.

 

  • Seamless Input tax credit

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In the current tax structure, input tax credit is available on VAT but not available on service tax and import duty. In the proposed GST regime, there will be set off on taxation starting from producer’s point to the consumer point. GST will make an impact by eliminating the cascading effect of taxes thereby reducing the total tax burden on the retail sector.

 

  • Increased Supply chain efficiency

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Warehouses will have a huge impact in the Retail sector when GST is rolled out. As CST is scrapped off, Industries will be in no mood to operate warehouses in each state wherever they operate. As a result, around 20 % – 30 % consolidation of warehouses will occur. Transportation will benefit due to state boundaries will not be considered as boundaries anymore. The usual queues and wait time at check posts and state boundaries will be reduced further reducing the lead-time.
The impact of GST will be evident on supply chains, as their designs would be efficiency-oriented and not in alignment with the taxation system.

 

  • Taxes on gifts and promotional items

 

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As per the GST bill, any supply without any consideration will attract tax. Now, this is a very common practice in Indian retail sector to offer free products to cross-sell or promote one plus one free offers. In the current tax system; these free products, samples and gifts were tax-free. Once GST is implemented, such gifts will be also taxable and the retailers would have to rethink their cross-selling strategy.

 

  • Better Opportunities & Growth of Retail Market

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Upon implementation of GST, analysts predict unification of markets. Thus, biggest of the impacts of GST will be in the widening of potential markets for the retailers. Retailers would be ready to explore markets across diminished boundaries leading to better growth of the retail market.

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From both taxation and operations perspective, GST will clearly have a positive impact in the retail sector. These industries will have to re-evaluate their current supply chain strategy and re-structure their network. The way the retail sector is going to design their supply chain network will be a crucial factor since it would give them the opportunity to save costs around an overall 1 % – 1.15 % of sales.


  • Shilpi Khurana

    Informative article about GST. Indeed it will cascade the effect on Tax on Tax.
    For daily bookkeeping, sales invoicing and inventory management in gofrugal pos software.