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.
Post GST, every taxpayer needs to put a proper system of accounting and record keeping and there would be a minimum increase of cost to business anywhere around 5,000 to 10,000 per month. Transaction in the retail sector is carried out mainly through cash and we have already seen the downfall of sales during demonetisation. Post GST, there will not be any significant change in sales as consumer behavior would not be changed. 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.
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, policies and procedures are simplified and there is not much incentive for evasion of tax.
Disclaimer: The author is chief financial officer YMS Mobitech. Vews express here are personal