Wholesalers in Mumbai’s Masjid Bandar clueless about GST
Mumbai: With less than a week left for the debut of goods and service tax (GST), wholesalers and retailers in India’s largest wholesale market at Mumbai’s Masjid Bandar have little idea about the new regime. Their doubts are many: How do I sell to my customers who are not registered? What are the new billing system requirements?
For some like Mukesh Shah, 54, at Siddharth Trading Co, a distributor for sugar, wheat flour and gram flour for South Mumbai, there is no clarity on how the new system will work. Under the value-added tax (VAT) regime which GST will replace, pulses and commodities were not taxed. However, under GST, packaged commodities come under the 5% slab.
“We don’t know anything now. Once everything is finalized, we will consult with our chartered accountants and understand what GST is,” says Girish Nagda, 46, proprietor of Shri Stores, a wholesaler and retailer in Masjid Bandar.
Close to 40% of India’s Rs2.6-trillion packaged goods industry mostly transacts in cash at the lower level of the supply chain. A majority of the nine million retailers in India are kirana, or mom-and-pop, stores that deal only in cash. “Only 2.5% of the outlets in major cities accept electronic card payments,” a Nielsen spokesperson told Mint in December.
GST will make doing business tougher in unorganised sector. Even among those willing to make the change, there is a lack of basic awareness. Also, the resources to make the change may not be available to the smaller retailers.
“Ultimately, the real small kirana stores who won’t be able to computerize will be wiped out,” says Bharat Jain, 52, Jinit Agencies, distributor and stockist for some of India’s largest consumer packaged goods companies including Godrej Consumer Products Ltd and Marico Ltd.
Traders are also worried about increasing costs of doing business and overall inflation, which could impact demand. GST demands a large number of compliances. Earlier, traders used to upload a summary of their total sales and purchase. Under GST, each and every transaction must be uploaded. Also, the buyer may not be able to offset tax credit if the vendor from whom they have purchased has not filed his returns.
Overall, the total number of monthly filings will go up three-fold. Earlier, depending on the size of the business, it was once every month or quarter, and in some cases, annual returns, says Santosh Dalvi, western India head, indirect tax, KPMG.
Paperwork has increased for traders. Under GST, traders will have to keep bills in triplicate—original for customer, duplicate for the transporter and triplicate for self, says Dalvi. Moreover, they will also have to provide electronic way bill (transit bill) for every transaction above Rs50,000. All these will have to be generated from the GST portal. Under the current VAT regime, such requirements were not there. This requires wholesalers to be digitised.
(1) Bharat Jain, 52, proprietor of Jinit Agencies, distributor and stockist for some of India’s largest consumer packaged goods companies including Godrej Consumer Products Ltd and Marico Ltd
Jinit Agencies supplies consumer packaged goods to over 3,500 retail stores across South Mumbai. Close to half of these operate in the wholesale market and deal largely in cash. With GST, the unorganized market is expected to shrink as it will be difficult to operate without paying taxes. Jain says since demonetization, the cash-led part of his business has shrunk from 40% to 20-25%.
However, when it comes to his own business, Jain is not as worried. The trading firm purchases directly from large manufacturers and is already digitized. In most cases, the software provided to the firm is also from the manufacturers, who have conducted various training sessions to prepare him for GST.
Also, one of the biggest concerns for retailers and distributors is margins under the new regime as taxes increase. The second is losses on account of closing stock on 30 June, which under the new regime from 1 July, will see a difference in pricing and taxes. However, Jain says he is covered on both counts. “We deal directly with the companies and they have assured us to take care of our margins and our losses on the transition stock,” says Jain. This, however, does not hold for Jain’s customers, especially those who operate on cash.
Currently, Jain’s customers, the kirana store retailers are de-stocking. Smaller retailers and wholesalers do not understand the new tax regime, and don’t want to be holding a lot of stock during the switch-over, says Jain. According to Jain, wholesalers and small retailers are worried about losses as they are not covered for the transition stock. “Ultimately, the real small kirana stores who won’t be able to computerize will be wiped out,” says Jain.
(2) Tarun Jain, 38, general secretary, Khadya Tel Vyapari Association Maharashtra and distributor for Gemini oil in South Mumbai for the last five years
The Khadya Tel Vyapari Association has close to 500 members, who are traders and distributors of cooking oils across Maharashtra. The association has voiced its displeasure with some of the rules of GST. Its biggest complaint is that most traders do not have the infrastructure for monthly digital compliance. Their offices are small, about 400 sq ft in size, and most traders have neither the space nor the skills. Proper Internet connectivity is also an issue even in areas like Masjid Bandar which is in the heart of Mumbai, says Jain. Under GST, retailers have to file their returns every month. “The filing should be made quarterly at least initially, and gradually increased as we get used to the system,” he says.
Jain also disapproves the clause which holds buyers responsible to pay tax in case the vendor from whom they have purchased has not filed his taxes.
Jain who is a supplier of Gemini oil to kirana stores in South Mumbai is also not happy about the increase in paperwork. All details have to be uploaded before sending the goods to our customers. Additionally, if there are returns, then a new process has to be initiated. It’s not as simple as raising a debit or credit note any longer. The complexities of doing business have increased, rues Jain who on an average generates 25-30 bills per day.
Jain also finds GST inflationary for items like ghee which come under the 12% tax slab. “Today, even the poor aspire to buy ghee. But the 12% tax will make it unaffordable for them as prices will increase,” says Jain.
Under GST some daily consumption items like sugar, wheat flour, oil, ghee, detergents and liquid soaps will become more expensive.
Moreover, the promise of GST is also not getting fulfilled, says Jain. GST was to subsume all the other taxes to be one tax. However, the APMC tax of 0.8% continues in Mumbai and Thane region, says Jain.
“GST is supposed to be one tax. However this is not true,” says Jain pointing out to taxes like the APMC tax that remains.
(3) Mukesh Shah, 54, Siddharth Trading Co, distributor for sugar, wheat flour and gram flour for South Mumbai
“We are not prepared for the switch. We have no clarity on how the new system will work,” says Shah, proprietor of Siddharth Trading Co who has the distributorship of companies like Renuka Sugar Ltd, Parakh Agro Industries Ltd, Sanghvi Foods for sugar and wheat flour brands like Samrat, Madhur and Silver Coin for South Mumbai.
It is not possible to use the system as there is no one there who understands it, said Shah. “We will wait and watch and after implementation, will try and understand it. It could take us 6-12 months to get back to routine,” says Shah, whose customers are street side vendors and hawkers who sell tea and snacks like vada pav. These people buy small amounts of Rs500 on a daily basis and hardly have an income of Rs25,000-30,000 per month. “Nearly two-thirds of our customers are not registered for GST. How do we deal with them? wonders Shah.
Under VAT, pulses and commodities had no tax applicable. However, under GST packaged commodities have come under the 5% slab. Moreover even as taxes like octoroi have been subsumed by GST, the prices of transport will not reduce. Overall, GST will be inflationary for packaged commodities the kind Shah sells. “Prices will go up by 2-3% on an average,” says Shah who is of the opinion that staples should not be taxed as they constitute daily household consumption items.
(4) Girish Nagda, 46, proprietor Shri Stores, wholesaler and retailer
“We don’t know anything now. Once everything is finalized, we will consult with our chartered accountants and understand what GST is,” says Girish Nagda, 46, proprietor of Shri Stores, a wholesaler and retailer in Masjid Bandar. At present, it is business as usual for Nagda who has small retailers and even retail consumers coming to his store to shop. However, business has been muted in the past month as smaller retailers are buying less as down the chain, everyone is fearful of losses under GST.
“Cost of doing business will increase post-GST,” says Nagda, while explaining that the number of compliances means that there will be increased paperwork and they will have to be equipped to manage that.