Anxiety, nervousness in malls amid raining discounts ahead of GST

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Inside the DLF Mall of India in Noida’s tony Sector 18 area, storied brands are on sale at half the cover price. Salesmen’s pitches are blending in perfectly with the monsoon’s pitter-patter outside, as screaming billboards in the plush arcade announce a rain of “pre-GST” rebates.

Mobile phones, wristwatches, TVs, washing machines, air conditioners, refrigerators, jeans, apparel and shoes: almost everything can be bought after a good haggle.

Don’t let the image mislead you. The country is in the middle of the biggest one-off sale season ahead of goods and services tax (GST) as nervous traders tentatively prepare to transit to the new tax system, billed as India’s biggest reform initiative.

A mid-year switchover to GST have prompted anxious shops to de-stock and clear up the inventory pile ahead of July 1 when the new system kicks in.

“This was a three-week long sale. It has been our highest rate so far, and now we have almost completely cleared of our stocks,” said a store manager at Vijay Sales, a multi-brand electronic retail chain.

GST will overhaul India’s indirect tax system by consolidating an untidy patchwork of local and central duties such as VAT, central excise and octroi into a single levy, make the tax administration more efficient and turn India into a common national market by removing fiscal barriers among states.

Nobody is quite sure whether prices will rise, fall or remain the same after GST, which partly explains the jostle to drain out old stocks at heavy price markdowns.

Most electronic gadgets, for instance, have been placed in the 28 per cent GST slab, marginally higher than the current effective tax of about 27 percent—15 percent local VAT (value added tax) plus around 12 per cent central excise duty.

The system of input tax credit (ITC), however, has queered the pitch, which may eventually bring down prices, despite a higher GST rate than the current effective tax rate.

Input credit means at the time of paying tax on output, a producer, trader or service provider can reduce the tax already paid on inputs.

Denim major Levi’s had started the sale and it has got a ‘great response’.

“We have not been informed anything about the new MRPs either, but we are anticipating some changes. Before June 30, we were instructed to achieve the highest liquidation of apparels and shoes from the distress inventory,” said Muhammad Shadab, store manager at DLF Mall of India Levi’s store.

“However, as a business this means a loss for us, but we are expecting to recover in the next quarter,” Shadab added.

Some consumers weren’t expecting too much of a change after GST.

“I don’t think the GST will change anything particular in terms of business of retail stores. Just that now that as per some goods have been priced, it seems that the tax burden will be shifted to the upper middle class and luxury goods. GST is goods as most essential commodities will get cheaper,” said Sonia, a homemaker who was shopping for her daughter’s birthday.

Niksha, a 25-year old employee at an IT firm, echoed similar views.

“I did hear a lot of pomp and noise about the pre-GST sales across online stores and even here in the malls, but I feel it is a bit hyped. I’m just buying few clothes for necessary purposes,” said.

Under GST, all goods and services have been placed under four slab structure – 5, 12, 18 and 28 percent – along with a cess on luxury and demerit goods such as tobacco, pan masala and aerated drinks. Most services, except those in the negative list of essential services such as healthcare and education, will come under GST.

Most retail store owners have registered in the GSTN portal an IT backbone to enable real-time taxpayer registration, filing returns, handle invoices, execute inter-state tax settlements, and connect states for two-way data flow.

Although many popular retail stores have exhausted quite a bit of their inventory, a complete stock dry-out on July 1 was unlikely.

“We have run out of inventories for our discounted products. Right now, I only have 55 pairs left from the old stock that is discounted,” said Kaliash Mondal, store manager Bata, a shoe and leather goods brand.