GST: Shower of discounts for shoppers
New Delhi/Mumbai: Connaught Place, an upmarket shopping centre in the capital city, was unusually busy for a rainy Friday—retailers were offering tempting discounts to draw shoppers to their outlets.
The reason: retailers were on an overdrive to clear stocks before midnight, when the goods and services tax (GST) kicked in, as they wanted to minimise their pre-GST inventory.
An executive at the retail outlet of a readymade garment brand said, on condition of anonymity, that prices of branded garments would go up from Saturday in line with the 12% GST rate on garments priced above Rs1,000. Those that cost less than this will be taxed at 5% and could be priced lower.
Besides the end-of-season sale that coincided with the roll out of GST from 1 July, what was driving the discounts was the fact that traders will get only 60% credit for taxes paid by them while sourcing their stocks for meeting the GST liability on the sales they make, if invoices for taxes paid previously are not available. If documents proving taxes paid previously are available, full tax credit will be granted under the GST regime.
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“If the retailer carries stocks of the old regime, it may become difficult to sell due to change in the tax rates and new price points,” said Rituparno Mukhopadhyay, executive director, technology consulting, at PricewwaterhouseCoopers India Pvt. Ltd.
According to Archit Gupta, chief executive officer and founder of ClearTax.com, an online tax payment portal, retailers have been de-stocking since they are unsure how the GST regime will impact their margins. They may also be wary of the detailed form-filing needed for claiming tax credits on the remaining pre-GST stock during the transition period.
“Retailers are tempted to liquidate old stock as they want to move into the GST regime with less things to comply with,” explained Gupta.
Meanwhile, Big Bazaar, the supermarket chain run by Kishore Biyani’s Future Group, was offering discounts ranging from 2-22% on select food and grocery items which will be taxed at a lower rate when GST takes effect.
The retailer announced a sale starting 12 am for two hours with the new prices. Goods with the new packaging and pricing are, however, yet to reach Big Bazaar’s 280 stores across the country.
The sale, according to Biyani, is to mark the muhurat (auspicious time) of transitioning to the new tax regime.
“Every good thing starts with a muhurat,” Biyani told Mint.
Big Bazaar stores across the country shut at 9.30 pm Friday for two-and-a-half hours to upgrade to the new software and billing system. At 12 am on Saturday, they are to open again for business for two hours with the discounts in the range of 2-22%. These prices are to be applicable over the weekend as well.
“We have segregated our products according to the GST tax slabs that they come under. These discounts will be absorbed by the company and are reflective of what we think will be the new pricing under GST,” a Future Group spokesperson said.
The company is also offering consumers a cashback of Rs300 on its Future Pay wallet for purchases of Rs1,000. The offer is valid just for the two hours of the midnight sale.
The retailer was among the most proactive companies when the government on 8 November invalidated high-value banknotes starting at midnight in an announcement that came at around 8.30 pm. Within half an hour, it sent 10 million text messages to Future Group loyalty programme members announcing that its stores would remain open until 11.50pm. Close to 200,000 new customers also shopped at the group’s stores in the last two hours before they closed.