IMPACT OF GST ON RETAIL INDUSTRY

How significant will be the Impact of GST on retail sector in India?
Goods and Services Act (GST) is considered to be a game changer for the Indian economy. This has been the biggest indirect tax reform which was long awaited and certainly promises to create unilateral platform for all goods and services offered in India. No doubt, there have been apprehensions regarding the impact of GST on various sectors of Indian economy. The case of retail sector is of paramount significance as it not only includes huge volume of transaction but also generates mass employment in both urban and rural sector. As far as the global scenario is concerned, India is the fifth largest preferred retail destination and one of the highest in terms of per capita retail store availability. Whether the exponential growth of retail sector will carry forward in the GST era, is an important discussion across several quarters. Nevertheless, Compound Annual Growth Rate (CAGR) of India is dependent on the vibrant retail sector.

  • The proposed GST will reduce taxes with more transparency– In the VAT regime, retail products were subject to VAT, CST, and service tax on warehousing. Apart form that,  the products were also subject to Octroi or entry taxes along with consulting fees and rent. GST system will drastically reduce taxes and this will reduce the price of the product bringing much needed relief to the customers or consumers.
  • Increase in supply efficiency will be an added advantage in the GST era– Supply efficiency is another highlight which is going to transform the traditional retail chain set up. CST being abolished and no further need of keeping warehouses, increase in efficiency will certainly be an added advantage to this sector.
  • Consistent input tax credit will be a common feature with the arrival of GST– This  will no doubt eliminate the cascading effect of taxes in the retail industry.
  • Location & compliance factor will no longer be an issue after GST implementation– Location wise, in the GST era, place of supply for retail will be the location where goods are delivered in a stipulated time frame. Importantly enough, the role of the entire compliance system under GST will reply on Goods and Services Tax Network (GSTN) which will be managing all issues regarding registration, returns, payments and the other aspects of the whole procedure. Smooth functioning of GSTN will be indeed pivotal to the profit making aspect of retail sector in the GST era.
  • Taxation on gifts, promo offers and other promotional items will begin in the GST era– In Indian retail sector promotional offers or discounts are very common, especially in the festival season. In the VAT regime, all such free products, samples, gifts were tax-free and retailers opted for such as essential tool in aggressive campaigning. In the GST regime, all such gifts will be considered for tax. Thus retailers will definitely need to brainstorm on alternative way outs in GST era.
  • Competing with the e-commerce domain will be an important factor even in the GST era for the retail sector– For the last few years e-commerce domain has been considered to be the biggest opponent of retail sector. In the GST era, all such companies will be required to consider their operations across which will require huge logistical support with improved infrastructure. No doubt, it will definitely favour the case of the retailers.
  • Will GST invite more FDI in retail sector? Whether GST will invite Foreign Direct Investment (FDI) in retail industry or not, is another serious issue. In all probability, investors will be careful enough at least for the first few months of GST era and then further investments can certainly happen.
  • Probable expansion of retail sector in the GST era will be a huge boon in the long run– Considerable advantages in both taxation and operating domain will give ample opportunities along with cost saving approach. Added to that widening of potentials market for retailers will boost the market with more money flow and vast new range of possibilities in the days to come.
Nevertheless, the timing of implementing GST is also in favour of the retailers. Last year when the Central Government opted for sudden demonetization, wholesalers, distributors and retailers had no other choice but to de-stock the inventory and also they were compelled to reduce the volume of goods considerably. At present Indian economy is recovering its shape in spite of average yearly results and retail sector too has showcased its promise ahead of the GST regime. An unified potential retailer market will definitely beneficial for Indian economy in the long run and in all probability, the arrival of GST will help it.
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