The Game Changer
GST is expected to play a pivotal role in expanding the retail sector to USD 1.3 trillion by 2020, at a CAGR of 16.7 per cent spread over a span of five years from 2015–2020. Here’s how GST will transform the retail scenario in India.
GST is expected to play a pivotal role in expanding the retail sector exponentially in the days ahead.
GST is much more than just a tax reform. It’s a whole new way of conducting business. It’s been over a month now of GST implementation and it has already brought more than six million businesses across industries under its ambit with more to come in the future.
The Indian retail sector, which is the fastest growing industry in the world, is expected to benefit hugely from this potential game changer. GST is expected to propel the growth of the Indian retail and there are many evident benefits, which the industry experts foresee: reduced taxes, enhanced supply chain efficiency, seamless input tax credit, and stretching of retail markets. Retail is penetrating rapidly in Tier-ii and III cities of India (5th largest retail destination in the world). The industry is well supported by FDI policies, which allow 100% FDI on single brand and 51% in the multi-brand retail.
The retail industry in the pre GST period [prior to 1st July, 2017] was taxed with a bunch of indirect taxes like VAT, CST, service tax on warehousing, octroi, entry tax, etc. The unified GST taxation system is bound to shrink the overall taxation burden on the retailer and the taxation percentage will be substantially lower than the previous regime.
Enhanced supply chain efficiency
The pre GST period had complexities and challenges in the retail supply chain: long queues and complex documentation at check posts, which added to the transaction time and costs. All of this has now been considerably reduced with the one-nation-one tax being enforced. The industry has started witnessing lower costs, reduced waiting time and minimal logistics in the overall supply chain, adding to their bottom line profitability. There would also be a considerable consolidation in the number of warehouses and it is only logical that retailers will prefer to have lesser warehouses serving extended boundaries resulting in a hefty drop in warehouse costs.
Seamless Input Tax Credit
GST will reduce the burden of tax on the retail sector as it will set off the tax, starting from the manufacturer – wholesaler – retailer to the customer point. It will benefit retailers by eliminating the cascading effect of taxes, thereby reducing the overall tax burden.
Stretching of retail markets
GST will open doors for the new markets as it will subsume all the indirect, state and central taxes and a new scenario of a unified tax across the nation with much clarity and transparency will emerge. The business expansion will become relatively easy across the states and anyone can now sell anywhere with a single GST registration.
GST will reduce the burden of tax on the retail sector as it will set off the tax, starting from the manufacturer – wholesaler – retailer to the customer. It will benefit retailers by eliminating the cascading effect of taxes, thereby reducing the overall tax burden.
Tax on sample items and gifts
The GST model levies taxes on every supply without consideration and every gift or sample item is now taxed in the new regime, contrary to the earlier ecosystem. Earlier, the gifts and the sample items used in the marketing efforts of the retailers were tax free. However, now the retail industry will feel the pinch of it and there would be a significant upsurge in the marketing budgets. The sector will see new laws pertaining to invoices creation, which are as follows: • Invoice creation is mandatory for sale value above Rs. 200. However, an invoice must be essentially provided, if the customer insists for anything less than Rs. 200 too. • Invoice above Rs. 50,000 should have the customer address. • Individual invoice details are not required for return filing. A consolidated filing will suffice. • Sale through e-commerce operator has to be reported per operator. GST benefits on Indian retail will strengthen and fuel the growth of the sector exponentially and have a ripple effect on the economy.