GST Countdown: ‘Will Have To Burn The Midnight Oil To Meet Deadline’
GST will lead to change in promotional strategy of retailers.
Multiple registrations, enterprise resource planning (ERP) systems, credit mechanism for existing stock - retailers are struggling for clarity on these and many more issues as they gear up for July 1 implementation of the Goods and Services Tax (GST).
With 46 days remaining for GST to go live, in BloombergQuint’s special series, GST Countdown, electronics retailer Vijay Sales’ Managing Director Nilesh Gupta said that traders will have to burn the midnight oil to meet the implementation deadline.
Here are edited excerpts from that conversation.
Let me start with the simple stuff - you have stores outside of Maharashtra as well, in Gujarat and Delhi, what has been your experience with the registration process?
The registration process was quite smooth because you have to register in all the states. We are present in five states- Maharashtra, Gujarat, Delhi, Haryana and Uttar Pradesh. So, registration process was not a problem at all. I think the first steps were well taken.
We have an important meeting of the GST Council coming up this week on May 18 and 19. We might get some clarity on treatment for existing stock or transition stock. Help me understand the aspects that you’re hoping to get clarity on?
Infact that’s the most important thing. Until now, we are all on the Value Added Tax regime, and under VAT, each state has their own rate. For example, in Maharashtra, we have VAT of 13.5 percent on all the consumer durables whereas in UP, Delhi and Gujarat it is 12.5 percent. Now when we move to GST, what happens to all the stock which we are carrying on to July 1? How will the input be taken care of?
Though, I think all the retailers and industry people are sure that it will be taken care of, but we are waiting for clarity on what grounds and how much input and what basis are they going to give us the credit.
The draft rules do give us some insight into it, right? They have said that if you don’t have the duty paying document with you, you will get 40 percent deemed credit on your Central GST or State GST. Is that a credit rate which you are happy with?
In fact, what we are looking for is that input credit should be 100 percent. Why should any retailer or any businessmen suffer because of the transition? Documents are always going to be with the people who are doing clean business; so I think documentation is not a problem. We neither want extra input, nor do we want to pay extra tax.
So you are saying in cases where the retailers have the documents, you are anticipating that you will get a 100 percent credit?
Exactly. The only thing is that there is a possibility that they are talking about and that is any goods which you have for more than six months, mostly the credit may not come.
So can we look at some good deals here at Vijay Sales? How are retailers organizing their transition stock, are you trying to sell it at discounts?
Deals are always there at the electronics stores but yes, the prime focus is to keep less stock as you near the GST implementation date. But at the end of the day, you are running a business. So there is a minimum stock which you will always have to carry. The only thing is whatever excess stock which we carry, we are trying to reduce that, I think that’s the aim for all the retailers across.
Another important aspect is that rates. Help me understand within your product pipeline, what are the rates which you are still unclear about or you haven’t been able to take a call on it yet?
See most of the category in our consumer durables, the rate is going to be 28 percent because currently also if you see, it’s 12.5 percent excise and 12.5-13.5 percent VAT. So all put together they will definitely fall into the slab of 28 percent.
Which is still a better rate than today’s effective rate of 30 percent, right?
Yes, exactly. Now, the only question mark I think is going to be on the computer parts- laptops and digital products, which currently are enjoying the rate of 5 percent. Whether they will continue to tax it at 5 percent or they will take it to 12 percent - that is a big question mark.
Within these, the ones priced at lower band might have a lower rate versus the higher priced product in the same category?
Possibly; they may do it for mobiles. So for a mobile that costs less than Rs 5,000, they may possibly do a 5 percent rate, and for mobiles above that price, they may take it to the 12 percent rate.
Are you prepared technology-wise to make everything digital and upload every bill of yours? And how is your ERP solutions planning coming along?
See, we are already digital. All our bills are already digital. Now it’s the ERP people, who are doing the software and are already in sync with the government who need clarity. And they are working on the Application Program Interface (APIs). But, the biggest issue as of now is that these are all drafts, the actual law has not come. The actual way or process in which the goods will be transferred inter-state and intra-state; how is the billing going to work from the manufacturer to the retailer; how will retailer bill to the consumer - all those things are still under discussion.
There are probable ways in which it will be done but there’s nothing sure. So no software person can start doing the work accordingly. I think in the coming GST Council meet more clarity will come in; the laws should come in; then the software people will be ready to roll.
You mentioned that there is a separate team, is that a part of the GST Council or is it a government-appointed team that is helping retailers to put software in place?
Yes, there is a government-appointed technical team which is talking with all the software developers and they have constant meetings with them. In GST, everything is going to be uploaded and it will be visible to all. So, when I am buying from a brand say, I am buying from LG, so whatever bills have come to me and how much GST they have paid, it will be visible to me when I go on the website. So, all the software guys have been talking to the government-appointed body on the commonalities of the software.
So, how long do you think this process will take; assuming that they finalize the rules in this meeting?
See if they finalize and if they declare July 1 is the deadline and we are not going for two months postponement to September, nobody has an option; everybody will have to burn the midnight oil and close it.
How ready are you currently?
It is very difficult to say because, till the time the laws do not come in we are ready to be ready, but not ready also. So, let the laws come in. Looking at the way the government is functioning, I think July 1 will happen. I think there’s a lot of work going on and we also want it to happen, because if it will happen on July 1, by the time we enter the Diwali season, things will stabilize. If it gets delayed for two months, then during Diwali we will have a transition period, and those teething problems will be there, which might not be good for business.
There’s another business point that I want to discuss with you- a lot of warehouse strategies will change once GST comes into effect. Have you started that process yet? And do you anticipate consolidation for Vijay Stores’ warehouses?
Yes, what would happen is, with GST coming in, the movement of goods will be without any hassles. Like Maharashtra if you see, if you have to get in, in Mumbai, you have to pay the octroi. Once GST comes in, the movement will be unhindered. So in that case the strategy would be to have a very big mother warehouse in Bhiwandi, where your warehouse costing is cheaper, real estate is cheaper versus the city, ideally you should not have a warehouse in the city, but because of the traffic condition, you will need a warehouse in the city. So you can reduce the size of the warehouse in the city and increase the size of the mother warehouse. And going forward, once the infrastructure improves all over the country, then you can possibly have a centralised godown facility may be in Indore, may be in Nagpur which can cater to most of the country seamlessly. But that I think is far-fetched, another five years from now.
Another important point which will come into play for retailers is the promotional strategy. Because any supply without consideration will attract tax once GST comes in. What kind of promotional strategy can we anticipate?
We are waiting for the final rules to come in because that will decide how the strategy will change. Because you will always see in consumer durables, you buy an apple and you get a cherry free. So, we must see how to marry the apple and cherry in the GST regime. See ultimately, what will happen in the GST regime is that the apple must be billed, the cherry must be billed; only thing is the consumer mindset will need to be changed.
And, which is the dominant of the two, and accordingly GST rate will apply.
In that case, what will happen is, we must have an apple and a cherry from the same rate basket. Because if you are taking a product from the 12 percent basket, and one from 18 percent basket, you will have to apply 18 percent rate; it is not going to be feasible. So normally what happens is the freebie, the gift items, and all that, they must be at 12 percent category. Now if they the freebie is at 12 percent and a Samsung refrigerator is at 28 percent; so on the product you are giving free, you are giving extra 16 percent. So possibly, you will have to reframe the schemes.