GST will not hurt second quarter sales, retailers say

KEY HIGHLIGHTS:

Retailers claim no impact on Q2 sales post GST implementation due to no drastic price changes.
 

Brands like Pepe Jeans are preparing for GST by giving small time GST 'non-compliant' vendors the shaft.
 

Retailers said pain period after GST implementation will be short-lived.

Goods and Services Tax (GST) is set to come into force from July 1, 2017 and consumer durable sector is gearig up to switch to the new taxation system. At the ReTechCon hosted by Retailers Association of India (RAI) on Wednesday, retailers of major brands said that there would be no impact on quarter 2 sales post GST implementation..

Although many feel that first few months are going to be difficult before things settle down, consumer durable and FMCG sector believes that GST will not have an impact on the first two quarters of its launch. 

"Our estimates is that taxes are not going to go up substantially, maybe 1-2% depending on the price and category of the products," said LG Electronics Business Head, Hemendu Sinha. 

He added, "Q1 sales across the industry will be low because of low sales during May and June."

Currently, the average VAT rate on most of the household appliances is nearly 11-12.5% and excise duty is at 12.5%.

The GST on consumer electronic goods is expected to be at 28%.

"Taxes are going to be paid to the government simple. Whether it's low or high would be payed to the government," said Sinha when asked about passing on any reduction in tax benefits to the consumers.

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"GST will not have much impact because of smart inventory management on our part," said Sanjay Soni, LG - Vertical Head for Retail and Corporate.

When asked about discounts and sales offered to clear inventories, Soni said, "Retailers are giving discounts on inventories from their own margins to get GST ready." 

Reliance Retail CFO, Ashwin Khasgiwala said, "Everyone is working towards promoting modern trade and continuing the momentum of sales. I don’t think there will be any great disruption. There will be learning and in a few months time it will be back to normal like any new scenario."

The 'pain period' anticipated by the retailers is expected to be short lived for a period ranging from two to six months.

"We are not anticipating any short term disruption. Nobody has expressed any concern on that. On the contrary it (GST) will be a better compliance scenario which will benefit the consumer in the long run," Khasgiwala said.

The expected GST rate on FMCG product is estimated to be 18-20%. This is lower than the current effective tax rate of 22-24% in most states.

Asked if retailers would be passing on the reduction in tax benefits to customers, Khasgiwala said, "For retailers the benefits will come from the MRP changes with the manufacturers and from there the journey starts."

In our case it is more or less the same if you take all the input credits. The current is the same as what we were paying before. I believe that there will not be any price increase or price decrease. I don't see a pricing impact of GST rates on apparel," said Kavindra Mishra, Pepe Jeans India CEO.

"Destocking is happening but it is not like for example in the FMCG sector where the people are not buying more goods, that is not happening. The only thing happening in apparel sector is that the discounts and sales that would be held in July is happening 15 days earlier," Mishra added.

Speaking about the challenges of switching to a new tax regime, Mishra said, "The only challenge is that how compliant are your vendors. If they're putting the invoices as per GSTN portal. That is the challenge for all of us in the industry. I think it would be a pain for six months because you would anticipate anything new there's always going to be bottle necks and challenges."

"Over the last six months we have moved on from small vendors and focused on vendors we felt will be good enough which we believe will be GST compliant. We have shafted around 10% of our vendors," Mishra said.