Indian retail sector is comprised of organised retail and unorganized retail i.e. sale through traditional family or small stores or shops. The share of organised retail in India is still less than 20 per cent and majority contribution is of unorganised sector. The e-commerce sale is still less than 7% of overall retail sector sales in India. The total registered tax payers under Excise, Service tax and VAT are only 83.5 lakhs and likely to increase to 2 crore in goods and services tax (GST). Though we all know that GST might have negative impact for some sectors in India for short-term due to tax rate impact on existing stock during transition or increase in the tax rate post-GST regime as compared to existing rates. So far as organised retail is considered it would have a positive impact but for the entire retail sector, we need to see the impact in light of small retailer and shops.
Unorganised retail sector would likely to participate more by coming in mainstream tax paying system. GST on any transaction cannot be avoided unless the entire transaction is out of GST system right from manufacturer to retailer. Because of simplicity of taxes like one tax, credit of all type of taxes even small businessmen would like to contribute in India biggest tax reform. The government is also discouraging the purchase from the unregistered dealer as tax on the purchase from unregistered dealer needs to be paid by the registered dealer by way of reverse charge. Impact on retail sector can be summarized as below:
- Organized Sector and large tax paper of unorganised sector will be gaining due to uniformity of tax rates all over India and availability of tax credit on all transactions post-GST
- Small retailers with turnover upto 50 lkahs can avail benefit of composition scheme where tax can be paid @1% of sales value and also relaxation in maintenance of accounts and records
- The threshold limit for registration under GST for traders has been increased to 20 lakhs from existing limit of 5 to 15 lakhs depending on the state VAT limits
- E-commerce in already struggling with multiple taxes and entry taxes in various states. GST would help E-commerce to gain immensely due to removal of entry tax and availability of Input credit for all taxes paid
- Small shop or retailers who are selling through e-commerce channel would need to maintain some records and is subject to tax collection at source @ 2% by Ecommerce Company though the same can be adjusted while making payment of tax liability by these small shops
- All taxpayers except composition taxpayer need to file 3 returns on monthly basis on 10th, 15th and 20th of next month respectively which would result in some additional monthly cost. But there would be a huge saving in form of input tax credit on taxes paid for various services like telephone expenses, professional expenses etc and taxes paid for the purchase of goods from other states.
With the implementation of the Goods and Service Tax from 1st July 2017, there will be a substantial amount of changes in the tax rate from the current VAT rate being charged which may benefit the Retail Furniture business as well as plywood manufacturers , though it’s not clear right now … As we know in India Furniture business has gone from unorganized to organized as several key e-com players came up in last few years …
- The final goods produced by the manufacturer of wooden furniture will be taxed at the rate of 12% under GST instead of the current average VAT rate of 12.5%.
- Plywood is used mainly in the manufacture of most of the wooden furniture articles. There has been a significant increase in the rate of plywood from the current average VAT rate of 5-6% to 28% under GST. Due to the increase in the tax rate on plywood, there are significant chances of increase in the cost of wooden furniture.
- Iron or steel furniture are also expected to get expensive under GST. Current average VAT rate applicable on iron or steel furniture is 12.5% whereas under GST except for wooden furniture, any other articles of furniture would be charged tax at the rate of 28%.
It is clear that the tax rate under GST on wood, furniture, iron or steel is higher than the current applicable VAT rates, therefore final produce for the customer will also increase .
For example, if currently a final product from a furniture maker is priced at INR 1,00,000 , the same product after GST application will be near about INR 1,20,000 .
Mr. Kabir Bhasin , CEO , East Furntiure , who has been in this business for over 20 years, believes that with the implementation of new tax slab, the cost of raw material , i.e plywood, the cost of manufacturing ( machinery used) , the cost of supplies , and cost of retail spacing, will all add up to increase in the final MRP of the product .
Furthermore, online sales of furniture will be affected due to same, as giving off heavy discounts ,which is a key method that companies use to grab customers ,will be harder post GST .
East furniture has made the month of June a “shop all you can” month , with discounts upto 70% on its existing stock to clear the old stock before 30th June, a maintining two separate inventories for same product, at different tax slabs will become a issue.
Post Demonetization and the way public are supporting the Current Prime Minister and his policies, It is quite evident that even retailers and small shopkeepers would like to join mainstream system provided the tax structure even in the Furniture and Plywood sector .
Inputs by Mr. Kabir Bhasin , CEO , East Furntiure