India’s biggest reform initiative is finally on a rollout. The days preceding the rollout witnessed a lot of conversations, discussions and deliberations around the entire process, its implementation and effect on various sectors and the economy growth and stability of the country. There is no doubt that a unified GST will not only help streamline different types of taxes but will incorporate different tax legislations under one cohesive regime across India.
This progressive step taken by the government aims to alter the dynamics of doing business in the country by facilitating unified market system, and reducing transit inventory, improving FDI prospects and enhancing operational efficiency which in turn leads to an efficient logistics management for better movement of goods and services across state borders.
The retail sector is the second largest employer in the country after agriculture. One of the most conversed topics during this entire period was whether it would make particular goods or services cheaper or costlier. Like any other sector, the new tax system introduced by GST is all set to change the dynamics of the Indian retail sector including shopping malls. Value and volume will both become key drivers for the retail segment as brands will be providing more product lines and the latest in trends at shorter intervals. Moreover, fast fashion will be the way forward. Thus, the impact of GST seems to be advantageous for shopping mall owners from taxation as well as operations standpoint.
Here are few changes that mall owners have been witnessing ever since GST has been implemented throughout the length and breadth of the country.
Tax Minimization – GST intends to simplify taxes by reducing the burden of multiple indirect taxes on the retailers such as service tax, VAT, Octroi, CST, CAT, registration fees, excise duty, etc., by introducing a unified tax system across India, thus making it easier for mall owners to comprehend the system of taxation in India more precisely.The rental tax attracting a service tax of 14.5% burden will come down effectively thus reducing the operational expenses for retailers. According to a recent Crisil report the profitability of brick and mortar retailers will improve as service tax on rent gets set off in the GST regime leading to overall growth and rise in revenue per square feet, which, in turn, will improve their fixed-cost absorption ability.
Seamless Integration: One of the major benefits of GST is its positive impact on various components in the retail value chain at different stages. Retail businesses will reap further benefits owing to seamless and faster procurement of goods owing to an improved supply chain, logistics and low transportation costs. I feel this will have a much bigger impact in retail, as it will encourage newer players to enter the market and reach out to other states as well to spread their business.
Discount offers to continue: For apparel brands, 5% GST will be charged on products priced below Rs 999 and 12 percent for products priced above Rs 999. Thus, apparel outlets in shopping malls are revising prices and taking adequate measures to adapt themselves to the new GST regime. That said, luxury clothing brands and accessories brands in malls are continuing with post GST discount sales to liquidate their old inventory as they won’t receive input credit on the old stock as per the new GST policy.
Dining in shopping malls has become cheaper: Air-conditioned restaurants in shopping malls are now charging GST at 18% (9% as CGST and the other 9% as SGST) irrespective of the availability of alcohol for customers. This is indeed good news for foodies as the tax on dining in AC and 5-star restaurants have come down to 18 % from 20.5 %.
Beneficial for both retailers and customers in the long run: As far as the retail products are concerned current GST of 18 percent along with the introduction of input tax credit will prove favourable to the retailers. Though several retailers and apparel/ fashion accessory brands in shopping malls are raising prices, for now, the costs will eventually even out as soon as retailers pass on the benefits to their customers.
Future prospects of retail business in shopping malls post-GST seem to be bright…
GST bodes well for the growth of the retail sector. It aims to simplify the tax structure to aggrandize the ease of doing business in the country by ensuring a steady cash flow into the sector. Since GST will replace multiple takes with a single tax, the retail chains in shopping malls will witness great benefits. Most of the apparel brands are absorbing GST impact in their existing price.Otherthan reducing the burden of general expenditure on the consumers, GST will offer a plethora of benefits such as GDP growth, improved tax compliance and better FDI prospects which will create immense advantages not only for retailers and consumers but also for shopping mall owners in the years to come.