India's most ambitious tax reform since independence, the Goods and Services Tax, will go live from Friday midnight. But confusion still rules across retailers and traders over who will bear the losses on the unsold inventories post the GST rollout. The Retailers Association of India (RAI) has written to the government seeking simplification of invoice rules for retailers.
“We have reduced our stocks and have not bought fresh inventory, except for daily necessities like milk and bread, for the last three to four days. We want a clarity on what will happen to the unsold inventory from July 1 and who will bare the losses on these goods,” said a large retailer from Thane.
The confusion arises from the multiple tax slabs introduced for goods in various categories under GST. For instance, most of the processed foods and personal care products have been taxed at 18 per cent, which is slightly lower than the 22 per cent tax rate in the existing system. However, skin-care products, shampoos and detergents, among other products, will fall under the 28 per cent GST slab.
FMCG trade, being largely cash-driven, was hit hard by the government's move to ban Rs 500, 1,000 currency notes last year. According to analysts, a few wholesalers may not have yet returned to their normal operational levels and may not re-stock for some time in the wake of the GST uncertainties. “The wholesale trade will not want to carry high stock levels as they will be unsure of getting input credit,” said Arnab Mitra, research analyst at Credit Suisse.
From July 1, companies will be able to claim input credit while filing taxes for those taxes already paid on purchases they have made earlier. Prices in some categories are also expected to come down post the GST rollout and therefore, wholesalers are running with below the normal levels of stock-holding, Mitra added.
Retailers also see a lot of complexities in issuing invoices. For instance, every bill will have to be signed by an authorised person. Also, items sold that are exempt under GST, will need to be issued separate tax invoice along with the bill.
“There is still a confusion on the way one has to make a bill. Every item has to be attached with the relevant tax to it. This will make the bill large. Each bill has to be physically or digitally signed by an authorised person. Since its a B2C (business to customer) bill, it will slow down the process at the front end,” Kumar Rajagopalan, CEO of RAI, told THE WEEK.
Apart from seeking simplification of invoice rules, RAI also wants parity on taxes for packed and non-packed food grains. While unpacked food grains have been exempted from GST, packed food grains will attract five per cent tax.
Most of the large retailers have already geared up for the switch, registered on the GST Network, upgraded their systems and set up teams to oversee GST-related matters. However, it is the smaller traders who are worried about the complexities and filing returns online on the GST Network.
Recently, Secretary General of Confederation of All India Traders Praveen Khandelwal, speaking to THE WEEK, had said almost 60 per cent of the country's 100 million traders were yet to adopt technology in their day-to-day operations and there was a lack of preparedness to move to a system that is completely online.
However, there are some concessions for smaller traders and businesses. Those with a turnover of less than Rs 20 lakh have been exempted from GST. The GST Council had also raised the composition scheme to Rs 75 lakh from Rs 50 lakh. Traders who opt for the scheme would have to pay a flat one per cent tax, although they would not be eligible for input tax credits.
Interestingly, some big retailers like Future Group see a huge opportunity to cash-in during this transitional phase. The country's largest hypermarket operator will launch a special sale from the midnight of July 1 till 2 am when there will be discounts of up to 22 per cent across categories. Many companies have also advanced their end-of-season-sales to June-end this year.
