GST: Businesses race to adapt to new tax regime
New Delhi/Mumbai/Bengaluru: The weekend following the Saturday midnight rollout of goods and services tax (GST) witnessed many companies announcing price cuts and some pausing market operations to update their systems even as wholesalers were seen rushing to upgrade software to comply with the requirements of the new indirect tax system.
While the tax reform which seeks to bring in transparency and efficiency was welcomed as positive for India’s sovereign credit profile by rating agency Moody’s Investors Service India Pvt. Ltd, the government actively sought to allay fears of taxpayers and make the transition to the new system easy.
The halt in sales in certain manufactured goods such as cars is expected to normalise over the next couple of days as the supply chain shake-up during the transition gets over. Some of the complaints among traders over compliance difficulties seemed to be an early sign of the expanding indirect tax base. For the government, a wider tax base will give room to keep tax rates as low as possible.
Over the weekend, Apple cut the retail prices of iPhones, iPads, Macs and Apple Watch models for its consumers in India, while fast moving consumer goods (FMCG) company Hindustan Unilever Ltd cut prices of some of its detergents and soaps, extending the benefit of reduced tax under the GST regime to consumers.
Two-wheeler maker Hero MotoCorp Ltd slashed prices of its models by Rs400-Rs1,800, the company said on Sunday.
Godrej Consumer Products Ltd (GCPL) reduced prices of some of the items manufactured on and after 1 July. “The goods should reach the market in a few days. For other categories where GST rates are going up, we don’t intend to increase prices,” said Vivek Gambhir, managing director of GCPL.
Big Bazaar, the retail chain run by Kishore Biyani’s Future Group, had announced a sale at reduced price starting midnight of Saturday, when GST was launched, although those were the goods on which higher taxes were paid during the earlier regime. The discounts ranged from 2-22% on select food and grocery items on which the tax burden is lower under GST. The retailer had segregated all its products according to the GST tax slabs that they were to come under, explained a spokesperson for the Future Group.
Online retailer Amazon India said it has made a successful transition to GST. “We have received encouraging feedback from our sellers over the last two days regarding the changes we introduced to support the transition. Sellers continue to participate enthusiastically in selling their products to Indian customers through the Amazon India marketplace. We continue to see strong demand from customers post the transition,” an Amazon India spokesperson said.
However, traders at India’s largest wholesale market at Mumbai’s Masjid Bandar were confused and finding it hard to cope with the new tax regime. They were seen rushing to buy laptops and installing software required for filing GST returns.
“The situation is chaotic. People (traders) are asking one another what is to be done. The business has stopped completely,”said Tarun Jain, general secretary, Khadya Tel Vyapari Association Maharashtra and a distributor in South Mumbai. The association’s main concern is that traders don’t have the resources to comply with the IT-driven tax system.
A finance ministry official who spoke on condition of anonymity said that the second day of GST implementation passed without major problems. “We have got encouraging reports from kirana shops to departmental stores that have started getting acclimatised to the new tax system,” the official said. Revenue secretary Hasmukh Adhia sought to dispel fears among tax payers through his Twitter handle clarifying that invoices can be generated manually and that internet connectivity is needed only at the time of filing monthly GST return.
Some FMCG companies were busy making the switch to the new system and are expected to resume despatch of goods at new prices to distributors by Monday or Tuesday.
Most consumer packaged goods distributors for companies such as HUL and Marico Industries Ltd also kept their trading firms shut over the weekend to update their software.
“We will remain closed for now and start operating only after we comply with the new rules,” said Vijay Dedhia, proprietor of Jayshree Enterprise, a distributor of FMCG products.
Majority of the wholesalers and retailers at South Mumbai’s Crawford Market were seen either issuing handwritten bills or issuing no bill at all, as they did not have the required systems in place.
The change in price in a particular region will also depend on the prevailing state and local body taxes. Regions with low octroi like Bengaluru can expect an increase in prices while Delhi and Mumbai may benefit as they had high octroi which now is abolished.
“The real pricing will only be revealed next week,” said Ritesh Ghosal, chief marketing officer, Croma, a consumer durables and electronic appliances retail chain operated by Infiniti Retail Ltd, a unit of Tata Sons Ltd.
Many businesses which pushed sales in June with discounts are likely to see a dip in revenue in July, because a part of the sales that should have happened this month had taken place earlier.
This year, department stores and malls went on end-of-summer-season sale about two weeks earlier than they did last year, said Rajneesh Mahajan, chief executive officer, Inorbit Malls India Pvt. Ltd.
“We have registered a 15-17% growth when compared to the first 15 days of end of season sales last year,” said Mahajan.
At Future Group’s retail chains like Big Bazaar, the growth in sales for the month of June was 30% higher on an average compared to the year-ago period, said Kishore Biyani, chairman and chief executive officer, Future Group the parent of listed retail firms like Future Retail Ltd.
GST will be positive for India’s sovereign credit rating as it will lead to higher economic growth and increased tax revenues, Moody’s Investors Service India Pvt Ltd said on Sunday. “Over the medium term, we expect that the GST will contribute to productivity gains and higher GDP growth by improving the ease of doing business, unifying the national market and enhancing India’s attractiveness as a foreign investment destination,” a statement from the agency said citing Moody’s vice-president, sovereign risk group, William Foster. It said GST will support higher government revenue generation through improved tax compliance and administration, both of which will be positive for the country’s credit profile. Moody’s has a ‘Baa3’ rating on India with a positive outlook.