Impact of GST on the retail sector

India is among the top five retail destinations of the world and one of the fastest-growing too! The sector contributes about ten percent to the GDP of the country and about eight percent of the employment generated. Factors like a large consumer base, urbanization of the country, rise in disposable income attribute to the growth of the sector. However, if one was to look at the evolution of the industry, India has come a long way from the kirana stores and multi-local brand stores to malls, international brands, online stores. The shift was seen mostly after 1990s when Indian economy got liberalized. The growth story of retail sector in India is phenomenal and an example in its own kind.

The retail sector typically covers the following industries:

• Apparel and footwear
• Consumer durables and IT
• Jewellery and accessories
• Health and Entertainment

• Home décor and furnishing
• Beauty and personal care
• E-commerce
• Others

The above list is not exhaustive and may encompass even more categories.

While Covid-19 has disrupted the growth of a large number of industries within the sector, the growth of e-commerce has accelerated. With lockdowns in place, people are opting for home deliveries through web platforms especially in the case of groceries and vegetables and other household items.

Impact of GST on the retail sector

When GST was rolled out about four years back, the retail industry experienced some positive changes. While the obvious one was subsuming multiple levies and simplifying complexities, there are other impacts – both positive and negative. Some of these key impacts are listed below:

1. Effective supply chain – The erstwhile regime of CST and VAT made it almost mandatory to have warehouses and depots across the country. This led to a situation where the retail sector was incurring significant expenses on such storehouses. Rentals, maintenance, staff salaries and upkeep of these places was a task in itself. However, once GST was rolled out, multiple storehouses became redundant and the industry was finally able to get rid of these additional expenditures.
2. Seamless Input Tax Credit – Seamless credits is a pillar of the GST regime. Earlier, a lot of credits were blocked as far as retailers were concerned. These included excise duties, CST, import duties etc. However, with GST in motion, the majority of indirect tax levies are available as credits to retailers.
3. Lowered prices – As a result of the above two points, costs of the sector are reduced. Lowered costs result in lowered prices for consumers. This has increased the sales for the sector in terms of volumes and quantity. Moreover, since GST has removed cascading of taxes to a large extent, the same could prove beneficial for both – the sector and consumers.
4. Anti-profiteering – In the recent past, several FMCG companies have received notices from the National Anti-Profiteering Authority questioning the passage of benefits of GST to the ultimate consumer by decreasing prices. This has led to excessive litigation for the industry. Moreover, the ambiguous anti-profiteering provisions which do not prescribe any specific method or formula to compute profiteering has made this provision challenging to follow.
5. Promotional schemes – The retail sector has various promotional and marketing schemes such as buy one-get one, loyalty points redemption, free samples, gifts, vouchers etc. These schemes are already a subject of a dispute under GST. Multiple rulings and judicial pronouncements have been announced on the subject. Interestingly, there are differing rulings that have made the situation perplexing.
6. Discounts – Discounts are another significant feature of the retail industry. Apart from the invoice discounts which are easy to figure out and adjust, the industry also adopts secondary discounts. The tax position adopted in case of such discounts is different across the sector and is subject to disputes and litigations.
7. Reduction in compliances – For retail industries with multi-state presence, the number and complications of compliances have come down. Moreover, now with GSTN being functional, the compliances have become more structured and transparent.
8. Changes in GST rates – Since the time GST was introduced, the rates for various FMCG and retail items have been revised, mostly rationalised. Though, the move has been positive in the sense that rates have been made competitive with the international market, the frequency of this rate change has been a challenge to track. As an outcome, the system has to be updated multiple times with new rates, which is a costly affair.
9. Classification issues – Multiple AARs and other clarifications have been issued regarding classification of retail items. Some examples are classification of chapati, flavoured protein powder, skin care products etc. However, due to the complexity of issue and availability of plethora of items, there still remains ambiguity in terms of classification of goods and applicable GST rates.

Role of technology in retail sector

There is practically no sector which can strive and thrive without technology, retail being no exception. Retail is not only about selling products and services, but it encompasses a whole range of customer experience within it. Therefore, technology solutions for retail industry can be different than any other industry. However, from GST perspective, the sector may face challenges such vendor management and ITC reconciliations. The volumes in retail sector are humongous and hence, reconciliations may pose an issue. Additionally, the e-way bill and e-invoice compliances warrant more reconciliations. Moreover, from vendor management perspective the reminder mails and calls to vendors for filing their returns and paying taxes in order to enable the availability of ITC can be tedious and time consuming. Technology can prove to be a solution in such cases. The right tech solution assisting retail businesses in reconciliations and vendor management can resolve this issue to a large extent.

Apart from the above, the amplified scope and the spread of e-commerce in the country is evident. Completely tech-based e-retail solutions are available for apparels, grocery, vegetables, dairy, medicines, healthcare and what not. The horizon of e-commerce is expanding at an unbelievable rate. Right from ordering stuff, to maintaining inventory, to logistics to customer feedback is done on tech platforms. It may not be an exaggeration to say that technology is the most vital part of e-commerce and the segment may tumble without a sturdy technology solution.

Conclusion

The sector has seen outstanding growth in the last couple of years. With GST being implemented, the sector has witnessed cost efficiencies and structured compliances. This has attracted Foreign Direct Investment in the sector leading to a sustainable growth strategy. Moreover, the multiple policies announced by the government to encourage start-ups in the retail sector coupled with the synergies that GST has introduced has stimulated the new entrants into the sector.

Having said the above, the sector needs to focus on faster technology adoption. As per a recent report, the current growth of the Indian retail industry which is pegged at 10% is set to be doubled by end of 2021. The report suggests that this growth will be directed by consumer data and technological disruptions in the sector. Due to complex business strategies, the retail sector needs the help of technology to fully reap the benefits of GST implementation. Though it has its advantages, complying with specific provisions of the schema can prove to be challenging. Specifically, reconciliations of inwards supplies for robust input tax credit availment, B2C QR code provisions, etc. are some areas that can become difficult. These are the areas where technology solutions available in the market could save time and effort. These solutions can be extended to serve the sector completely – right from automating GST return compliances, e-invoicing, e-way bills, etc. Moreover, it may become challenging for the industry to track the frequent changes in the law. This is another reason for relying upon an expert and technology solutions which may to a large extent save the industry from penal consequences. As far as technology is concerned, AI would play a major role in the augmentation of the sector. Use of chatbots, customized retail solutions for customers, storage and use of customer preferences will change the landscape of the sector in the times to come.

You can also check out our blog related to the impact of GST on the real estate industry.

Komal Vithalani

Content Writer

Komal Vithalani, a Chartered Accountant and Commerce graduate, is a dedicated professional committed to delivering value with years of expertise in navigating the complexities of indirect tax laws. Her practical excellence includes managing perplexed litigations, dispensing tactical tax advice, conducting thorough compliance checks, supervising audits, and crafting articulate and insightful content. At Cygnet, Komal seamlessly blends her profound understanding of tax regulations with cutting-edge tax technology. Leveraging her competence, she adeptly transforms complex tax tech jargon into concise, impactful, and engaging content. This not only aids readers in comprehending tax-related topics with enlightening clarity but also ensures the delivery of narratives that resonate broadly.