Sloppy Implementation of GST Causing Problems for Traders

GST

Since November 2016 trade has been in a state of constant flux – one step forward, two steps backward. First, it was demonetisation, followed by GST and now there is talk about recalibrating the financial calendar to January-December. If true, we can be certain that this uncertainty will complete a year – a terrible blow to any economic activity. I am in principle a supporter of demonetisation and now the GST. What I dislike is the irrational haste and unpreparedness with which both initiatives were rolled out and the callous attitude of the government ordering the trade to endure the chaos and comply.

The hard fact is that 80 per cent of traders across India are not GST registered and in Kerala that number is about 60 per cent, says Deepak Aswani

As far as GST is concerned, the hard fact is that 80 per cent of traders across India are not GST registered and in Kerala that number is about 60 per cent. Secondly, no one expected different tax slabs for the same product based on price points. Thirdly, the idea of displaying tax levied on an invoice rather than concealing it within the MRP is counter intuitive.

Businesses that have to sell merchandise to small traders (paanwala/kirana store) will find the GST regime very demanding. In the cigarettes business that we manage for ITC, earlier we used to invoice the cycle sales agent (mobile hawker) and he would sell it to the kirana. Post GST, we have to invoice the last point seller which means if I have 100 mobile hawkers and each one serves 50 paanwalas, then instead of the 100 invoices I used to raise earlier, now I have to create 5000 invoices every month! The cost of compliance is certain to shoot up many times.
Retailers have started invoicing merchandise in parts to attract the lowest tax rate. For eg. a churidar costing Rs. 2999 is now being sold as three items with three invoices attracting 5 per cent GST each instead of being invoiced as one item at the highest tax rate of 12 per cent (for merchandise valued at Rs. 1000 and above). In the process, instead of suffering a tax of Rs. 360 for the full item, the customer will end up paying only Rs. 150. Loss to the exchequer is Rs. 210. There are reports that traders are even billing a pair of shoes as two items!

What GST has also managed is to bring in haggling into organised retail. Earlier, when you bought a Raymond shirt, if the MRP was Rs. 2999, you paid it. Now it will read Rs. 2789 (Rs. 2999 minus 2 per cent cess and 5 per cent KVAT) plus 6 per cent CGST (Rs. 167.34) and 6 per cent SGST (Rs. 167.34). Seeing Rs. 335 as tax, either the customer will ask for a transaction without invoice and if the trader insists, then he/she will haggle for a discount to address the ‘unnecessary’ pay out of Rs. 335. As long as the tax was hidden, it was fine. Now it is suddenly screaming at the customer and it is distressing. What this will lead to is tax avoidance. Even folks who were within the ST regime earlier will now go outside of GST to survive.

In the new GST regime, cash flows are going to get strained and working capital requirements will be more especially for segments where taxes have gone up substantially and credit period is high. In my view, the government should stop intimidating and threatening to enforce compliance. This is a huge change for everyone in the trade and what is required is hand holding and empathy. Fine, penalty and imprisonment are the words going around. Unless people are happy paying taxes it is never going to work in the long run. Ease of doing business has gone for a toss. The e-way bill is still a grey area as the government has not published it.

Ramadan and NRI season sales have been moderate but the 50-80 per cent discount mela that has become the norm post GST roll out to liquidate old stocks before the September deadline, it is feared, will impact Onam sales. If GST is embedded in the MRP, it could have ensured one extra sale.

(Deepak Aswani is Managing Partner, Aswani Lachmandas Group; Co-chair, Kerala State Council, FICCI; Member, Management Committee, KMA)