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The impact of GST on tax collection from the retail sector

It is expected that the dual GST will comprise CGST and SGST of 8 percent each. If this assumption becomes a reality, it would mean that the overall revenues could decline due to reduction in the current aggregate rate of 20 percent (approximately) comprising federal excise of 8 percent and the State VAT at the typical rate of 12.5 percent by four percentage points. However, this will be balanced by the fact that the federal GST will now apply throughout the chain and will no longer be restricted to manufacturing. Similarly, the increased tax base will enable the state governments to maintain tax revenues from the retail sector, notwithstanding the reduction in the State GST rate from 12.5 percent to 8 percent. The important and independent point however, is that the GST will surely incentivise an explosion in consumption and therefore it plays to the larger story around the fact that India’s economic growth is essentially domestic consumption led growth. Hence, it is this incentivising consumption that would lead to significant enhancement of revenue for both the Central and the State Governments. The retail sector is at the centre piece of this great consumption led growth story. Consequently, the GST will undoubtedly ensure that the tax revenue from the retail sector will significantly rise in the times to come.

Summary The key benefits of the GST for the retail sector are as follows—

  • Enhanced competitiveness through efficiencies in procurement and distribution

  • Enhanced competitiveness through full and complete offset of all input taxes

  • Ability to offer lower prices for goods through increased offset efficiencies as also lower compliance cost

  • Lower cost on compliance from an accounting and reporting standpoint

  • Enhanced government revenues from retail sector through higher CGST, SGST and IGST collections

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

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