GST impact on retailers: Extra discounts on white goods slashed

By: and |
Published: July 28, 2017 6:07:22 AM

As the Goods and services tax (GST) has increased the tax rates on white goods and kitchen appliances by as much as 3 percentage points, retailers have brought down their additional discounts on these products to 6% from 8% earlier.

GST impact on retailers, GST on retail industry, retailers in india, discount on white goods, pre-GST regime, market operating prices, Godrej Appliances, B2B transactions, Deloitte India, demonetisation, Tata's CromaThis will in turn help the manufacturers and retailers retain the pre-GST margins on these items.

As the Goods and services tax (GST) has increased the tax rates on white goods and kitchen appliances by as much as 3 percentage points, retailers have brought down their additional discounts on these products to 6% from 8% earlier. This will in turn help the manufacturers and retailers retain the pre-GST margins on these items. “In the pre-GST regime, retailers could give a discount of up to 8% on market operating prices (MOP) that are usually 3-10% lower than the maximum retail prices across products. With the increase in tax incidence, such steep discounts are no longer feasible,” said Kamal Nandi, business head and executive vice-president, Godrej Appliances. The GST rate on the home and kitchen appliances is 28% while the combined VAT-excise rate on these items used to be 23-28%. Of course,the increase in real tax incidence after GST will be lower than what the rate differential suggests as businesses now get increased input tax credit in B2B transactions. However, many firms are still keeping their fingers crossed on this as ITC flows haven’t yet started.

However, to dispose of old stocks — for which a window is available — manufacturers continue to give discounts. In the meantime, manufacturers have begun to ship new stock to retailers across the country. “Also, with consumers’ tightening their purse string, post-demonetisation, an increase in price at this time, would mean a drop in sales. Further, under GST, companies will be able to avail input tax credit, which would reduce the tax costs, the benefit of which will be passed on to the consumers in due course,” observed Rajat Wahi, partner, management consulting, Deloitte India.

However, post-GST, companies like Voltas which manufactures air-conditioners, and other commercial chilling products, claim to have decreased prices of air-coolers by 5%-6%. “Increased availability of input tax credits has enabled us to cut cost of operations and improve margins. We can continue to give discounts to consumers, without compromising on revenue,” explained Pradeep Bakshi, president and COO, Voltas.

However, retailers such as Vijay Sales and Tata’s Croma point out that, while there has been a slight increase in prices by a few companies, many larger firms are still on a wait-and-watch mode. “On the new stocks, only a few brands such as LG and Samsung have increased prices by 2%-4% in case of large appliances. Small kitchen appliances companies including Bajaj Appliances, have increased prices by 3%-4%,” said Nilesh Gupta, managing partner, Vijay Sales.

“In cases where the increase in tax has been very steep, prices have gone up marginally. For example LG and Samsung have increased prices, as manufacturers are still trying to find out the actual impact of the input credit, which would allow them to decrease prices in the future,” said Avijit Mitra, CEO, Infiniti Retail, which runs an electronics retail chain under the brand Croma.

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