After online sellers, offline retailers have also started discount sales to liquidate their stock, before the rollout of the goods and services tax (GST) from July 1. The categories — apparel, footwear, electronic accessories, mobile accessories, premium watches, women handbag, leather products, health and beauty products – remains the same for both, as they want to clear old stocks as the new system could be cumbersome for some time. Several retailers feel that despite favourable transition rules, the availability of input tax credit would be subject to layers of compliance in terms of documentation and identification of eligible stock which could translate into unwarranted compliance burden. Kavindra Mishra, CEO and MD, Pepe Jeans, told FE, “Retailers have pushed the sale forward to clear stocks as with the implementation of GST, tax incidence is likely to increase for retailers and to escalate prices on the existing stock would be difficult. We are also planning to start sale offering around 50% discount in the next five to seven days. Earlier the sale used to start from June end or July first week.” Readymade garments priced up to `1,000 would be taxed at 5% post July 1, while clothes costing above Rs 1,000 would attract a tax of 12%. At present readymade garments are taxed at 7%. Mishra further added that the existing tax rate on brands are around 5.5% VAT and 1.2% excise duty. However, that too differs from state to state. “So from the current 7% tax, it is going to increase to 12% once GST is implemented, – a reason why retailers are trying to clear the existing stocks.
Echoing a similar view, Harkirat Singh, managing director, Woodland said the situation is even worse for footwear brands as post the roll out of GST, footwear costing more than Rs 500 will fall under the tax slab of 18%. “Our average price range is around `2,000 and only some slippers or select items costs around Rs 500. So for us most of the products would fall under 18% category. So we are trying to get rid of the existing stock as the tax burden is expected to go up for both retail and warehousing,” he explained. At present, footwear less than Rs 500 fall under the tax bracket of 9.5%, while those between Rs 500 and Rs 1,000 or are made of leather are taxed at 23.1%, and the more expensive are are taxed at 29.58%. Post the roll out of GST, footwear priced below R500 will be taxed at 5%, and the rest at 18%. Popular brands such as Zara, Marks and Spencer apart from multi-brand retail outlets such as Lifestyle and Shoppers Stop have already started the sale, by currently offering close to 20%-30% discount on select products besides running various offers. The discount is further expected to expand to other categories as well as an increase to 70%-80% towards the end of this month.
Calling GST a positive move, Kabir Lumba, MD, Lifestyle International said that initially there will be some short term challenges to implement it. “Many retailers are trying to clear stocks and have started sale early this year as there will be some input credits which will not be available once GST is implemented, so retailers are trying to clear the old stocks available with them,” he said.
However, Rakesh Biyani, joint managing director, Future Retail called discounts and promotions a part of retail business. “The move should not be seen as a way of retailers’ selling of the pre-GST stock. GST is a positive move by the government for the betterment of the country’s economic growth. As the economy moves towards digitisation, the roll out of GST is only expected to make the process of taxation simpler. All the rules have already been explained and are fairly easy to understand,” added Biyani.