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Tax issues - GST will benefit retailers

The nation-wide implementation of a dual GST signals the next generation of tax reforms designed to remove the barriers of trade through a common market in India and to accelerate the country’s growth prospects. After much deliberation, the Empowered Committee (EC) of State Finance Ministers finally released the First Discussion Paper on 10 November, 2009 on the implementation of a dual GST in India. The nation-wide implementation of a dual GST signals the next generation of tax reforms designed to remove the barriers of trade through a common market in India and to accelerate the country’s growth prospects. The dual GST will have a material impact on businesses. The taxable events under the dual GST regime would be significantly different from those prevalent under the existing excise and value added tax provisions. Besides, there will be major differences in terms of the tax base, the rates of tax, the manner of levy and collection thereof, the manner of utilisation of input tax credits etc.

It is therefore apparent that trade and industry must gear itself up for the GST, not only from a business efficiency standpoint but also from a compliance standpoint. In particular, the impact of the GST on the retail sector is likely to be extremely significant, given the significant growth of the retail sector and hence its relatively large size, but also because of the nature of the dual GST itself.

Presented below are some of the key advantages for the retail sector under the GST regime.

GST will benefit retailers

Implementation of a dual GST will be a great boon for the country. Cross border retail trade between States can get easier with GST and this would help many retail companies to expand their distribution optimally. The tax will also have a significant positive impact on the supply chain of retail operations. However, most importantly, the dual GST is expected to operate in a manner that all of the input taxes paid on procurement of goods and services by retail companies will henceforth be eligible for a complete offset.

Major tax issues impacting retailers and how GST can assist

The retail sector currently faces the significant challenge of an inability to offset the service tax credits pertaining to several input credit services, including the most significant cost for retail companies of property rentals, as also non-creditable central sales tax on inter-state purchases of goods. Similarly, on imports, the retail sector is unable to offset the countervailing duties against output taxes.

Under the proposed GST regime, these challenges will entirely disappear since the retail sector would be able to offset the entire input taxes, whether paid at the Central level in the form of the CGST or at the State level in the form of SGST against its output CGST and SGST respectively. Even with regard to inter-State sales of goods, the sector can offset the input taxes of the CGST and SGST against the output IGST which is applicable on such inter-state sales.

Strategic Issues for Retail CEOs* : Perspectives on Operating in India’s Retail Sector

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