Aspect of GST

As we moving towards implementation of the GST, India Inc continues to grapple[gra-pu(deal,face,सामना)] with the assessment of the potential impact this mega reform could have on various facets[fa-sit(aspect,पहलु)] of business.

One of the critical aspects of business likely to be impacted by GST is product pricing.

Companies dealing in consumer products often tend to monitor/control not just their realisation from immediate customers, but also the maximum retail price (MRP) or the retail selling price (RSP).

While fixing the product price and payable in the chain by each of the intermediaries (distributors, dealers, retailers) also become a critical factor. Given that GST is likely to completely overhaul[ow-vu'ho(Modernise,repair,सुधारना,आगे निकल जाना)] the prevailing[pri'vey-ling(common,प्रचलित)] system of taxation, the entire pricing methodology would need to be revisited. For instance, the intermediaries could henceforth be required to pay dual GST (comprising central and State GST) in lieu[in loo(instead,के बदले)] of the existing VAT or CST.

The cumulative rate of GST on several products is expected to be at least 20 per cent, in contrast to the existing VAT rate of around 12.5 to 15 per cent.

One may argue that GST could lead to significant tax savings to several companies on their sourcing and manufacturing activities, which, in turn, should translate into lower product prices.

However, this may not necessarily be the case. First, the tax savings on sourcing may not always be adequate[a-di-kwut(enough,पर्याप्त)] to offset the incremental GST cost on distribution. Second, past experience suggests that many companies may not be generous enough to pass on the entire tax savings arising from GST, to the consumers. A case in point is the perennial[pu're-nee-ul(continual,लगातार)] grievance of the government that manufacturers of automobiles do not pass on the benefit of excise duty reduction.

Likewise, under GST, many companies may consider retaining at least partly, if not fully, the tax savings on sourcing, which could translate into higher prices to the end customer.

There are other aspects associated with GST that could influence pricing. Enhanced enforcement measures through use of technology could compel[kum'pe(forced,बाध्य)] many of the existing unregistered retailers to get registered under GST.

From a consumers’ standpoint, over 20 per cent GST on the invoice instead of the current VAT (say, 14 per cent) could be a rude shock to outrage[awt,rey(anger,नाराज़)] consumers.

The government would need to clarify that the enhanced rate reflected on the invoice is due to greater transparency, and not higher tax incidence.

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