Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Impact of GST on Retail - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 19, 2011

    Impact of GST on Retail

    The Indian government in its latest Union Budget announced a roadmap for the Goods and Services Tax (GST). The GST regime is likely to be implemented by April 2012. This regime is likely to bring down the prices of goods that we buy. Consequently, the retailing companies are expected to benefit out of increased consumption. Let us understand how.

    What is GST?

    Goods and Services Tax is a comprehensive tax levy on manufacture, sale and consumption of goods and services at the central level (CGST) and at the state level (SGST). This tax is collected on the value added to goods and services at each stage of purchase and sale in the supply chain (refer to the table below). This means that GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. Consumer who is the end user of the good or service ultimately bears this tax.

    Will GST be an additional tax burden?

    No, it certainly will not be additive in nature. In fact, introduction of GST will result in abolition of a number of taxes like octroi, central sales tax, state level sales tax, stamp duty, turnover tax, etc. It will be an all inclusive tax and subsume all taxes that are currently being paid on goods and services in India.

    Why are some states opposing? Implementing of GST will require a major revamp in the IT systems and administrative infrastructure. Many states are not yet ready with such a support system. Also, at present different tax rates prevail in the Indian states. The states fear that the uniform SGST which is decided might be lower than their existing rates thereby leading to losses. What needs to be noted is that currently, states do not charge separate service tax. They enjoy a share in the Central Sales Tax kitty, but once GST comes into being, this anomaly will stop to exist. Since there will be no distinction between goods and services under the GST regime, the sates might benefit out of increased revenue on account of services.

    Impact on Retail Rentals are one of the main costs of retailing industry and it attracts service tax at 10%. Currently, the retailers cannot set off these costs like the other industries. This they feel is an additional cost of operating in this industry which is unfair to them. Under GST, taxes on services would be available for set off against taxes on goods. Thus, the retailers would be positively impacted.

    The lack of uniformity in state VAT laws as well as in compliance measures; result in additional burden on retailers. It is expected that these issues will be addressed under the uniform SGST (State Goods and Services Tax).

    Let us try and see how this happens.

    The goods that we buy from shopping outlets go through a number of stages till they reach the shelves. And at every stage tax has to be paid thereby increasing the price of the goods. With GST, this tax burden will come down. The following table will help us understand this better.

    Stage of supply chain  Purchase value of Input  Value addition  Value at next stage Rate of GST  GST on output  Input Tax credit  Net GST= GST on output -
    Input tax credit 
    Manufacturer  100 30 130 10% 13 10 13-10 = 3 
    Whole seller  130 20 150 10% 15 13 15-13 = 2 
    Retailer  150 10 160 10% 16 15 16-15 = 1 

    Source: goodsandservicetax.com

    Thus, the retailers will pass on the benefit of the reduced tax incidence to their consumers thereby reducing the prices of goods sold.

    In the recent past, Indian consumers have always witnessed hikes in the prices. Reduction in the prices will be a welcome new phenomenon for them. With GST coming into effect, their purchases will cost them less and hence they will be willing to shop more. More shopping would mean more revenue for retailers.



    Equitymaster requests your view! Post a comment on "Impact of GST on Retail". Click here!

    3 Responses to "Impact of GST on Retail"


    Aug 19, 2011

    How to measure the value added at whole seller and retailer on any goods ?

    Like (4)

    Saket Malpani

    Apr 7, 2011

    Input tax credit is setting off of the amount of input tax for any tax period against the amount of output tax

    Like (2)

    Faizal Baig

    Mar 21, 2011


    Very informative & relevant. However, would appreciate if Equity Master could clarify input tax credit field given in the illustration.



    Like (2)
    Equitymaster requests your view! Post a comment on "Impact of GST on Retail". Click here!

    More Views on News

    Titan: Jewellery Business Lights up the Quarter (Quarterly Results Update - Detailed)

    Aug 10, 2017

    However, growth at these levels are unlikely to be sustainable.

    Avenue Supermarts Ltd. (IPO)

    Mar 7, 2017

    Equitymaster analyses Initial Public Offering (IPO) of Avenue Supermarts Limited.

    Titan: Beating the Demonetisation Blues (Quarterly Results Update - Detailed)

    Feb 14, 2017

    Titan Industries declared its results for the third quarter of financial year 2017 (3QFY17). While topline growth was 14.7% YoY, net profit grew by 13.1% YoY during the quarter. Here is our analysis of the results.

    Titan: Margin Improvement Saves the Day (Quarterly Results Update - Detailed)

    Nov 16, 2016

    Titan Industries declared its results for the second quarter of financial year 2017 (2QFY17). While topline growth was flat, net profit grew by 23.5% YoY during the quarter. Here is our analysis of the results.

    Titan: High Gold Prices Spoil the Show (Quarterly Results Update - Detailed)

    Aug 9, 2016

    Titan Industries declared its results for the first quarter of financial year 2017 (1QFY17). The company reported 3.3% YoY increase in sales, while net profit fell by 16.3% YoY during the quarter.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms