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GST rollout from 1 July, but confusion still reigns among auto, FMCG firms

LiveMint logoLiveMint 25-06-2017 Shally Seth Mohile

Mumbai: With just days to go before India rings in a historic unified tax system, confusion reigns in many consumer-facing industries such as automobiles and packaged goods. While most agree that the unified goods and services tax (GST) would bring much-needed efficiency and long-term benefits, the rollout is hurried, they say.

The piecemeal sharing of information on various aspects of tax reform has delayed the creation of an information technology infrastructure not only for those in the business but even at the government’s end, tax experts say.

Meanwhile, a lack of clarity over key aspects such as an anti-profiteering clause has led to confusion over the selling price of goods, particularly those sold at maximum retail price. Even as large firms are working to cope with the shift, those at the lower end of the value chain, including small distributors of packaged goods and sub dealers of two wheelers, spare parts distributors and small and medium enterprises manufacturing auto parts, are struggling. Some are yet to register for GST.

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“I have not registered for GST yet, I’m speaking to my CA (chartered accountant),” said Kunal Shah, owner of Mumbai-based Navkar Distributors, a wholesale distributor of personal care product, cosmetics, and condoms.

“GST has become a headache; we are still waiting for clarifications. This system will benefit mostly large firms that can afford to file monthly tax returns,” Shah said, adding that monthly GST forms for all three components (central, state, and integrated) were taking a toll on mid-size fast-moving consumer goods(FMCG) distributors. “You cannot change the system from quarterly (filing of value-added tax forms) to monthly overnight.”

Under the new system, companies like Shah’s would have to file 37 tax forms a year.

While Shah is aware of the complexity of the task in hand, there are others who are clueless. “We are taking each day as it comes. We have no idea what we are getting into,” said an Alwar, Rajasthan-based sub-dealer of a two-wheeler firm. He declined to be identified. He said he was relying on the primary dealership of the firm to help with the shift.

The challenge is bigger for sub-dealers as some of them have stock—vehicles and spare parts—which could be more than a year old, said Waman Parkhi, partner, indirect taxes, at consulting firm KPMG. According to the GST law, businesses cannot claim credit for stock that is over a year old, he added.

What further complicates matter for them is not having an excise invoice which manufacturers only give to primary dealers and not secondary ones. An excise invoice is required for claiming input tax credit. In cases where one does not have an excise invoice, there’s a provision to claim credit up to 60%, said Parkhi.

Unwilling to let go of the remaining 40%, secondary dealers, who account for more than half of the sales in some big two-wheeler markets like the North, have been reluctant to buy stock from primary dealers, said the proprietor of a primary dealership based in Delhi. “It’s only after we assured them that we will take care of their input tax credit, have they started taking fresh delivery,”he said.

KPMG’s Parkhi said a widespread tendency to not take more goods and de-stock by 30 June was slowing the overall economy.

Other large packaged distributors said their biggest challenge was getting smaller retailers and stockists on the GST system. “Half of our suppliers (packaged goods manufacturers) have agreed to accommodate whatever the impact of GST is on us and compensate for the hit on inventories,” said Keyur Bhatia, owner of Mumbai-based TJUK Trade Networks that distributes major foods brands including those owned by Nestle India, Hindustan Unilever Ltd, and Parle Agro among others.

But smaller companies have not agreed to this (compensation of loss) and so it’s putting TJUK’s bottomline at risk. Besides, Bhatia said, smaller stockists and retailers to whom TJUK supplies are unable to provide inventory and sales numbers on time for the firm to plug them into the GST network for input tax credit.

Parkhi of KPMG said ambiguity regarding the anti-profiteering law is yet another worry for companies. “The anti-profiteering laws do not clarify how does one calculate it—whether it’s product wise, sub-classification wise or at an entity level,” he said, adding that the law simply states that one has to pass on the reduced rates but doesn’t clarify how the costs being incurred on account of the transition are to be factored in. It also doesn’t specify how loss-making units pass on the benefits.

The lack of clarity on the subject means that companies, specially those which sell goods at maximum retail price (MRP), will not be able to go ahead with the new pricing, Parkhi added. “They cannot change MRPs overnight as there will be stock in the market,” said Parkhi.

GST is a good measure for the industry in the long run, but its implementation seemed to be in a hurry, said Bhatia of TJUK.

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