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GST and its impact on the Retail Sector

Dec 28, 2016

The Goods and Services Tax (GST) is set to roll out in India with effect from April 1st, 2017. GST being an all-inclusive national tax, it will eliminate the levying of additional taxes on the inter-state movement of goods and services. In India, a dual GST model is to be implemented under which all intrastate supply of goods and services will attract CGST (Central Goods and Service Tax) and SGST (State Goods and Service Tax), whereas IGST will be levied on interstate supply. Compensation for any revenue loss will be provided to the States and a mechanism will be set up to resolve any conflicts between the states.

Now the debate is that which all industries will get effected by GST. It is quite clear that the GST tax regime may not have a uniform impact on all sectors. However, analysts are of the view that Indian retail sector will take home the fair part of the deal.

Impact on the Retail Sector

The concept of manufacturer, seller, and provision of goods and services will be done away with and a new taxable supply event will be introduced. GST will be imposed on the supply of all goods and services except alcoholic liquor for human consumption. The key retail areas that are most likely to be impacted have been compiled below.

Tax Input Credit

Taxes earlier charged on the supply of services, such as rent payments for outlets and professional charges for services, etc. will be stated as credit under the GST. In the current tax structure, the duty (CVD+SAD) paid for the import of goods is a cost to retail, even though SAD (special additional duty) refund is available subject to various conditions. Under the GST, the payment of duty will also be considered as credit. This is expected to improve the availability of credit, which is in turn expected to bring about a positive impact for retail.

Central Sales Tax

GST implementation will phase out the Central Sales Tax (CST). In the current system of taxation, most retail companies plan their warehouse and outlet locations keeping in mind the CST–an indirect tax levied on any sale or purchase of goods in the course of interstate trade or commerce. Once GST is put into action, IGST–a creditable tax–shall be applied on all interstate supply of goods. Since IGST is a creditable tax, retail companies will have the option of shutting down some locations used just for the transfer of goods from depot to outlets.

Read: Retail Market in 2018

Retail Supply

Under GST, which is a destination based tax, tax is collected by the state where the goods or services will be consumed. Therefore, it becomes highly imperative to select the appropriate place of supply for making a tax payment. On careful evaluation of the GST model, it should be noted that POS for retail will be the location of the goods at the time of supply to the customer i.e. the location of the outlet/store. It can be deduced that for retail B2C transaction, CGST+SGST will be charged. Even for home deliveries made by a retailer within his local limits, the rule remains the same. Therefore, under the GST regime, the place of supply for retailers will be the final location where the goods are delivered to the customers. Read about GST impact on Indian manufacturing.

Read: GST impact on Indian Pharmaceutical Sector

Promotion Schemes

We often find retailers offering their customers various promotional schemes such as ‘Buy one, get one free’, free samples, etc. The free product is not subjected to sales tax. However, with the GST, free samples may also be accountable for tax deductions. Read to know more How GST will impact the Buy One Get One schemes.

Packaging and Labelling Activities

Since GST is a destination based tax, it will be applicable only on transactions concerning the supply of goods and services. However, it will not be applicable on the processes of packing or labeling that occur at different levels within a retail facility.


With GST, the check-post related verification for interstate movement of goods and services may come to an end. However, the GST law prescribes carrying of valid documents along with consignments of value above Rs. 50,000.

The GSTN (Goods and Services Tax Network), an IT network, will handle the complete GST compliance system and manage processes related to registrations, returns, payments, etc. The GSTN network is expected to process three billion vouchers monthly with 50,000 transactions per hour.

What’s Ahead…

“Passing of the GST bill in Rajya Sabha is an extremely progressive step and long awaited one. GST is one of the critical tax reforms which has potential to create one single market in India for goods & services and will boost country’s economy significantly.” said the Chairman, India Retail Forum and President & CEO Walmart India, Krish Iyer.

The government is relentlessly preparing the economy for a seamless GST implementation. Given this, it is vital that the retail industry also gears up for the GST so that a smooth and unhindered shift to the landmark tax reform can be duly achieved.

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