GST cloud over sports goods business
Ina3-partseries,BusinessStandardchecksoutthelevelofpreparationofSMEs acrossHaryana,PunjabandUttarPradeshaheadoftheJuly1roll-out.Thesecond partlooksatthesportsgoodshubinMeerut,UttarPradesh
Sumnesh Agarwal, a Meerut-based sports goods manufacturer and exporter, is treading with caution owing to the “uncertainty” surrounding the incoming goods and services tax (GST). He says he is holding back cricket gear worth ~40 lakh, as he wants to first see how the new tax regime pans out on the ground.
“By the time these goods would have reached their destination, it would be July 1. Right now there is lack of clarity on what it (GST) will entail. So, we are not dispatching (cricket gear) this week, even if it may tick off some customers,” Agarwal says.
Agarwal runs Premier Legguard Works, which makes bats, pads, gloves and other equipment for India’s number one sport. He says the combined annual turnover of his two businesses — manufacturing, and trading and exports -- is around ~9 crore. He names Umesh Yadav and Ishant Sharma among famous cricketers who use his products. He also claims that former Pakistan captain Younis Khan once endorsed his company.
“The first three months of the GST, from July to September, will be very uncertain. We honestly don’t know how things will turn out,” says Agarwal.
Ahead of the nationwide roll-out of the GST on July 1, ‘lack of clarity’ is something you hear repeatedly in the industrial town of Meerut, home to many medium and small businesses. The town is, however, most famous for its cricket equipment. Meerut is also the second-largest sports goods hub in the country after Jalandhar; it clocked sports goods exports of ~408 crore in 2015-16.
Anurag Agarwal, director of Micro Electric Private Ltd, says no businessman or chartered accountant is willing to guess the cost of compliance and migration to the GST. “It will be very difficult. We cannot say how the tax treatment will be. On paper, we know the rates. But there are so many products and their sub-classifications across the five tax slabs, that there is a lot of confusion about what will happen after July 1,” he says. His business involves sports goods as well as electronic items, and has an annual turnover of around ~2 crore.
Businesses say the migration won’t be easy, especially with regard to online infrastructure and the issue of input tax credit. “I am selling goods, and then I enter invoice details from my side. What if, for any number of reasons, the counter-party does not enter the details from their side. My input credit goes away. In a country where billions of transactions are happening every day, how can we keep tabs on who is entering their details and who isn’t?” says Ashok Malhotra, whose company, Crest Electro Engineers, manufactures voltage stabilisers.
Another concern is the reverse charge, which is aimed at getting more people into the formal GST network. “There are around four lakh micro, informal businesses, which are too small to come under the GST but contribute to the sports goods industry. We procure from them. We may have to stop that now, as in they won’t be able to file counter invoices to match with ours. It will be very tough on them. Such issues have not been considered at all by the authorities,” says Sumnesh Agarwal.
Anurag Agarwal says there could even be job losses. He hazards that 10 per cent of his staff may have to be laid off temporarily for the first quarter after the GST implementation.
The lack of clarity is not helped by tax officials, who, according to these businessmen, try to be helpful but come short of useful answers. All the three are also members of the Meerut chapter of the Indian Industries Association (IIA), a body representing the MSME sector in Uttar Pradesh.
“Over the past year, we have had six meetings with tax authorities. When those people come here, they come with rules and regulations, and bookish knowledge. They don’t address our practical, day-to-day concerns. Very few of the tax officials have been able to answer industry-specific queries,” says Malhotra.
There is also belief that small businesses get a raw deal compared to big industrial names, when it comes to representation. While Malhotra, Sumnesh Agarwal and Anurag Agarwal say the GST Council has been responsive to their requests, their industry body still comes up short on lobbying. They say big businesses have more financial muscle to hire the best talent to tide over GST-related hiccups.