With no time left for GST, discounts are winding up but ambiguity remains

As the Cinderella hour for GST approaches, businesses and brands are continuing with their sale to clear stock to start their books afresh. But how easy will it be is anyone’s guess.

I saw something today which I never have seen before, or never will again—alcohol shops giving discounts!

I have bought items from shirt to washing machine for discounts, but alcohol on discount is a first for me. However, my wallet has taken a hit the past few weeks as I have been shopping like never before, lured by the discounts offered by offline and online retailers. They are panicking about the Goods and Services Tax (GST) which will be implemented from tomorrow, July 1. As Future Group founder Kishore Biyani had tweeted a few days ago, it has been “GST Muhurut shopping”.

According to a report in the Financial Express, vendors on e-commerce platforms have been trying to liquidate stocks estimated at around Rs 20,000 crore so as to avoid the accounting nightmare that will happen after July 1.

A few weeks ago, Amazon ‘Wardrobe Refreshed’ sale gave 50-80 percent discounts and cashbacks in fashion for more than 3,00,000 styles. They even opened pop up shops in 12 corporate parks across Delhi, Mumbai, and Bangalore.

To assist sellers with GST, Amazon has opened ‘GST cafes’ across 11 cities to provide two weeks’ training from June 26. They even provide chartered accountants to assist sellers in updating their GST Identification Number (GSTIN) on seller central. They have also partnered with ClearTax in this regard.

With hardly 10 hours left for GST to come into effect, fashion seller Jabong is calling its current sale ‘Gear up Shop more Today’ (GST sale). Last week, Flipkart-Myntra-Jabong alliance conducted End of Reason Sale (EoRS) with 50-80 percent discounts. In fact, Flipkart put 99.9 percent of its styles in Flipkart Fashion on sale from June 24 to 26. They had also held ‘Flipkart Fashion Days’ for nine days in early June.

Not the end of the world

One of the worries among customers and retailers regarding GST was that prices will rocket up—which was also a reason for the discount sales.

A seller on all major online marketplaces said that there was no notification from marketplaces to sellers about discount sales. According to this person, who requested anonymity, the e-commerce platforms are liquidating a bit too much. “It is an over hyped situation. Technically you will get the entire input tax credit for whatever material you have. Discount is needed only when GST is more than VAT,” this person added.

A spokesperson of the All India Online Vendors Association (AIOVA) told YourStory that Amazon-owned Cloudtail and Flipkart’s WS Retail are also liquidating their stock. “They have also emailed suppliers of their private labels to inform that whatever tax difference will be bearable by the marketplaces after GST comes in—either you have to give us a credit note for the same, or you will have to take the goods back. In case you don’t do that, we won’t give you the next purchase order. Majority of private labels might have compensated there. Big brands like Samsung or Nike may not have compensated. That could be why these marketplaces want to liquidate everything.”

Retailers Association of India (RAI) CEO Kumar Rajagopalan also says that GST will not impact July sales badly.

According to him, GST came at the right time. “Offline players are also offering sale now. Anyway retailers go on sale mid-July. This year, it started earlier. Even Diwali is also coming a month earlier than it did last year. So it won’t be too detrimental to the interests of retailers,” he says.

But he agrees that there will be some loss in the transitional stock due to taxation. (Whatever is not returned to the supplier is part of transitional stock.) “It is a problem for manufacturers, distributors, and retailers. But predominant impact is for cros- border sales. That is IGST billing. There is no clarity about whether there will be input credit for that. For any small retailer buying locally it should not be a problem at all,” he adds. For instance, luxury watches are stocked for a year. But if the input credit is only for six months, then there is reason to worry.

Immediate future

So what happens to the inventory that is left behind after June 30? There is a 40 percent deemed input credit (3.6 percent of 9 percent CGST) given on existing goods in inventory (before June 30) which will get billed in July or later. But most of the brands are trying to get their inventory liquidated to channels so that they can minimise accounting work during the next quarter.

Sharad Jaiprakash, Founder of Nuoaura (a B2B marketplace for office supplies), says that he does not expect a larger impact on sales going down because consumption of goods is based on customer/businesses which has to as per their plan. However, he adds that availability of goods from manufacturers/brands will be a challenge, as there will be delays in supply which will impact on billing for suppliers.

With GST, transportation costs will go down as it will ease the entry tax for goods on inter-state movement from suppliers selling to end-users. This will in turn lead to better margins for the suppliers.

Lack of clarity

Retailers have to align with regulations so that transactions won’t get affected for the marketplaces (from July). They also have to ensure that no open purchases are left to carry forward. However, most small sellers are not GST complaint yet. Also, there are many ambiguities about the law. For instance, says the AIOVA spokesperson, if an item sold before July 1 is returned after July 1, what happens to the entire input and output flow?

Stakeholders agree that GST is beneficial in the long term but there is zero clarity with different policies being rolled out every day.

“Post GST, one percent TCS would be deducted. So what would happen for returns that come under GST now but were sold before GST? What is the reverse mechanism? Such questions have been raised by marketplaces too, and hence the government has deferred it. This gives liberty for filing for GST,” the spokesperson added.

Earlier this week, the finance ministry announced the government decision to postpone the provision relating to TDS (on public procurement) and TCS (on online sales) of the CGST/State GST Act 2017. So merchants using e-commerce platforms need not register for GST until the TCS provision is enforced. (Reportedly, it will be enforced from September 1.)

Also, online marketplaces need not register in every state now either. E-commerce companies will not be required to collect one percent TCS while marking payment to their suppliers for goods sourced under GST.

Too many loopholes?

Implementation of a law of GST’s scale is not easy. Kumar of RAI says: “There are grey areas in the GST Bill. The concept of branded commodities is yet to be defined. Why the difference anyway? Product and category are what matters. Also, B2C is not covered properly. Why should retailers show tax at an item level? It creates large size bills. This is not subject to input credit by anybody.”

Similarly, the GST law demands that every bill should get signed. With the volume of transactions, it will slow down the billing process. The GST network is not 100 percent ready either.

It was earlier announced that the entire reconciliation will be done on an invoice level. So if a seller sells 20,000 items in a month, the marketplace will be uploading 20,000 invoices to the GST network. The same will be uploaded by the seller as well, and it would be reconciled too. But now it has been announced that the retailer does not have to upload data on an invoice level, but in a curated HSN level.

AIOVA believes that it should not have been changed. “Post GST, any item sold in India will have to be purchased or sold against the HSN (Harmonised System Nomenclature) code. It is a unique identifier for the product globally. It has been used while importing or exporting something based on the excise and custom duty etc. It creates a loophole for tax arbitration,” says the AIOVA spokesperson.

Stakeholders do believe that GST will be beneficial in the long term, although it is a pain in the short term. As Kumar says, a policy at the central level throws more light on the power of retail – which contributes 20 percent of GDP.

The next six months will show how GST will be implemented, and how it can affect the country’s economy.