ASSIGNMENT

SADHU VASWANI INSTITUE OF
MANAGEMENT STUDIES FOR GIRLS,

PUNE
NAME: Mariya Iqbal Pithawala

ROLL NO.: 18114
CLASS: MBA PART II
BATCH: 2018-2020
SUBJECT: 403 (FIN), Indirect Taxation
ASSIGNMENT 2
Submitted to: Ms Vaishali Patil
DATE OF SUBMISSION: March 2020
IMPACT OF GST ON RETAIL SECTOR
INTRODUCTION: -
GST stands for Goods and Service Tax. Vishwanath Pratap Singh who was the 7th Prime
Minister of India first initiated GST act in 1986. After that in 2007, the prevailing government
suggested to deploy GST Act and the proposal has been presented in Lok Sabha in 2011 and
again the same proposal was presented in Lok Sabha in Dec 2014. GST Act was passed in 2015.
After the approval of Rajya Sabha GST act was launched from 1st July 2017 and it was referred
as 101 Amendment of Constitution. GST has become a revolutionary change in indirect taxes
after crossing 25 years of economic amelioration.
Goods & Services Tax is a comprehensive, multi- stage, destination-based tax that will be levied
on every value addition. Goods and Service Tax (GST) implemented in India to bring in the ‘one
nation one tax’ system, but its effect on various industries will be slightly different. The first
level of differentiation will come in depending on whether the industry deals with
manufacturing, distributing and retailing or is providing a service.
The primary attempt to implement GST in India was made on November 10, 2009 to give boost
to indirect tax structure and create a common market Several deadlines have already been set to
implement GST in India but all has been extended due to several obstacle in its way. GST is
considered as a destination based consumption tax, in which the consumption states are liable for
revenues as the origin states is likely to get 1% additional tax for at least 2 years. It is considered
to be a major improvement over the pre-existing central excise duty at the national level and the
sales tax system at the state level, the new tax will be a further significant breakthrough and the
next logical step towards a comprehensive indirect tax reform in the country. The
implementation of GST will increase the tax revenue for the Government and it would end the
distortions of differential treatments of manufacturing and service sector. Several Taxes like
Octroi, central sales tax, state levels sales tax, turnover tax, etc, will be clubbed under one ambit
GST. It will also help to curb inflation as the tax rate under GST regime will remain constant
over a period of time.
PROFILE OF RETAIL SECTOR: -
Quick moving buyer merchandise (FMCG) is the fourth biggest part in the Indian economy.
There are three primary fragments in the segment – nourishment and drinks, human services and
family unit and individual consideration which represents practically 50% of the area. FMCG
Companies are hoping to put resources into vitality proficient plants to profit the general Public
and lower costs in the long haul. Developing mindfulness, simpler access, and changing ways of
life are the key development drivers for the customer advertise. The emphasis on agribusiness,
MSMEs, training, social insurance, framework and business approaches by the Government
likewise affect the development of this area. Since various items are burdened at various rates
under GST, on a full scale level, the normal expense and the last costs that the end client winds
up paying have arrived at the midpoint of out post usage of GST, with a few items getting
progressively costly (circulated air through drinks, shampoos and so forth.) and others getting
less expensive (toothpaste, cleansers and so on.). As the retail part observers’ uncommon
development, India has risen among the most attractive retail goals on the planet. Despite the fact
that advanced exchange is developing at 15 to 20% per annum, it has a low sorted out retail
infiltration of just 8%. Further, different infrastructural challenges remain. India's financial
development and its segment profile make the nation a convincing business case for worldwide
retailers arranging a worldwide invasion. The solid financial development is credited to high
expendable livelihoods, developing working class impact, expanding singular riches and the
nation's huge youthful populace. The undiscovered provincial part and the lesser created Tier II
and Tier III urban communities give adequate chances to development. The progression of FDI
in single-brand retail and the normal opening-up of FDI in multi-brand retail have produced
noteworthy enthusiasm among worldwide retailers. The Government of India has acquainted
changes with draw in Foreign Direct Investment (FDI) in retail industry. The legislature has
affirmed 51 percent FDI in multi-brand retail and expanded FDI breaking point to 100 percent
(from 51 percent) in single brand retail.
IMPACT OF GST ON RETAIL SECTOR: -
The retail sector in India has witnessed a transformation from a multitude of family owned
businesses to organized modern retailing. India‟s retail sector accounts for 22% of the country
are GDP and contribute to 8% of total employment. The key agent of change that GST would
bring about in the retail spectrum is, that the services would be eligible for set-off against taxes
on goods. This is definitely a positive sign to the retailers as the VAT structure resulted in
compliance issues and uniformity of VAT laws resulted in additional cost burden to the retailers.
GST has expected to remove anomaly, as it would result in a shift to sale of goods from
manufacture of goods resulting in redesign of input tax credit. There are four slabs fixed for GST
Rates - 5%, 12%, 18% and 28%.
Benefits of GST implementation

 It will make the taxation system more transparent and simple and easy to understand.
 It will reduce the overall cost of goods and services to final consumer as cascading effect
of taxation will be overcome.
 It will facilitate free flow of goods and services and thereby reducing overall transaction
cost.
 Since GST is not levied on goods and services which are exported so it provides an
incentive to EOUs, SEZs and EPZs. And GST will be levied on goods or services
imported into the
 country with destination principle where the imported goods or services are consumed
that state will enjoy the tax revenue.
 Since intermediaries in the supply chain can claim the tax credit which will reduce the
cost the cost of doing business.
 It will reduce the scope of corruption in the economy as a whole.
 It will increase the tax base as more firms will come under the tax regime which
ultimately increases the tax revenue collection for the government.
 GST will guarantee the consistency of taxes over the states, irrespective of place of
production or consumption.
 The normal taxation rate on organizations will fall which will decrease the expenses of
Indian goods and services and make them competitive in the global market and ultimately
GDP would increase
 The taxation burden will be divided equitably between manufacturing and services,
through a lower tax rate by increasing the tax base and minimizing exemptions.
 For paying GST, 13/15 digit PAN linked identification in line with Income tax will be
allotted which will ease the tax payment system.
Reduced taxes – In the current tax structure, most of the retail products are subject to 30 %
indirect taxes on average. This includes excise duty, VAT, CST, service tax on warehousing,
consulting and rent, Octroi and entry tax. The main impact of GST on retailers will be a
significant reduction of the tax burden on the retailers.
Seamless Input tax credit – In the current tax structure, input tax credit is available on VAT but
not available on service tax and import duty. In the proposed GST regime, there will be set off on
taxation starting from producer’s point to the consumer point. GST will make an impact by
eliminating the cascading effect of taxes thereby reducing the total tax burden on the retail
sector.
Increased Supply chain efficiency –Major impact of GST will be on the warehouse networks of
retail industries. As CST is abolished, Industries will have no motivation to operate warehouses
in each state wherever they operate. This will lead to 20 % – 30 % consolidation of warehouses.
Transportation will benefit due to state boundaries becoming insignificant. The long queues and
wait time at check posts and state boundaries will be reduced further reducing the lead-time. The
impact of GST will be evident on supply chains, as their designs would be efficiency-oriented
and not in alignment with the taxation system.
Tax on gifts and promotional items – As per the model GST law, any supply without any
consideration will attract tax. It is a common practice in Indian retail sector to offer free products
for promotion or one plus one free offers. In the current taxation system; these free products,
samples and gifts were tax-free. Once GST is implemented, such gifts will also be considered for
tax and the retailers would have to rethink their promotional strategy.
Better Opportunities & Growth of Retail Market – Upon implementation of GST, analysts
predict unification of markets. Thus, biggest of the impacts of GST will be in the widening of
potential markets for the retailers. Retailers would be ready to explore markets across diminished
boundaries leading to better growth of the retail market.
CHALLENGES FOR IMPLEMENTING GOODS & SERVICES TAX SYSTEM

The biggest challenge since the GST implementation for the FMCG and retail sector has been
the effective rate of tax. While GST was expected to simplify taxation and bring uniformity, the
different tax rate slabs and higher rates for consumer durables led to an increase in the cost of
some items of mass consumption. Given the same, the GST council has been working on
rationalization of rates. In a recent GST council meeting broad rate reductions were introduced
with a specific focus on products such as sanitary napkins, domestic electrical appliances/ white
goods (food grinders, mixers, shavers, hair dryers etc.). Businesses continuously need to analyze
the impact of the rate rationalization, especially from an ant profiteering perspective.
 Determining threshold limit is a great challenge right now as low limit will bother small
scale traders and service providers but high revenue for government whereas high
threshold
 will result in less revenue for the government due to meagre tax base.
 Lot of changes at planning and implementation level will be required where
administration to be made in line with IT infrastructure.
 To implement GST, cooperation from state government is required as the states where
consumption of goods and services are high will enjoy more revenue than states which
have low consumption of goods and services.
 Determination of rate of tax on goods and services is a great challenge for the
government due to problem of consensus between centre and state in this regard.
 Heavy expenditure on IT infrastructure including Tax Information Exchange System
(TINXSYS), is required that too in a time bound manner for enhancing operational
efficiency, enabling voluntary compliance and enhancing tax payer's convenience
 Since there will be dual model of GST, so there will be different tax rates at State level
and Centre level and there further subdivision of these taxes will be difficult depending
upon necessity, location and resources of each state.
CONCLUSION
It is concluded that retailers‟ major challenge faced with GST is convincing the customers for
the price hike. The overall view of retailers towards GST is accepting might seem to be the
challenge but long run it‟s going to be a good change to the economy as a whole. GST has
impacted the Retail and FMCG sector by readjusting tax brackets and potentially reducing
distribution costs for various companies over the long run. Some companies have “gain” with
lower taxes and distribution costs, and thus have responded by increasing product volume and
lowering prices, while others may have “lost” with higher taxes, and thus need to compensate by
increasing prices. This is why there is an ongoing attempt on the part of the GST authorities to
rationalize the tax rates. However, the two rate rationalizations in 23rd GST council meeting in
November 2017 and 28th GST Council meeting in July 2018 have been positive for this segment
as a whole.

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ASSIGNMENT

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SADHU VASWANI INSTITUE OF

MANAGEMENT STUDIES FOR GIRLS,

NAME: Mariya Iqbal Pithawala

PROFILE OF RETAIL SECTOR: -

IMPACT OF GST ON RETAIL SECTOR: -

Benefits of GST implementation

CHALLENGES FOR IMPLEMENTING GOODS & SERVICES TAX SYSTEM

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