WHY RETAILERS AND DISTRIBUTORS ARE REDUCING THEIR INVENTORIES

The prices of goods would

change and retailers do not want to stock goods with old price labels.

As per the transition provision under the GST, retailers and distributors with old stocks will get 100 per cent input credit on taxes paid earlier only if they have proper documents. In case they do not have documents, they will get 40 per cent input credit if the goods fall below the 18 per cent tax slab. For goods in or above the 18 per cent category, the input tax credit will be 60 per cent of the new tax that they will have to pay.

While retailer and distributors can get the invoices of the VAT paid, getting the invoice for excise duty (which is paid by manufacturers and is in-built in the cost that wholesalers and distributors pay) will be difficult. This means distributors have to lose 40-60 per cent of the input tax credit.