A STUDY ON IMPACT OF GOODS AND SERVICE TAX ON RETAIL SECTOR

CHAPTER – 1

INTRODUCTION
Introduction:

The term „Tax‟ is derived from Latin word „Taxare‟ that means to
estimate. In India, a direct tax practice was prevailed across various industries.
From July 1st, 2017, GST came into being which is a comprehensive tax regime
levied on manufacturing, sales and consumption of products and services.
Introduction of GST has merged both centre and state tax into a unified tax system
across nation. This new tax regime which has cascading effects on the economy
which seems to be testing time for India for ease of business in the supply chain
systems. GST has become buzzword across the nation, which has created a sense
of transformation of businesses yet to get clarity in various sectors. In retail
industry, business has undergone dramatic changes both in organized and
unorganized retailing in Tier-I cities and Tier-II cities of India. As it is highly
fragmented in nature, the country is going to experiment with Goods and Services
Tax with new tax regime which has cascading effects on the economy. In this
context, Retailers are facing challenges in terms of handling merchandise across
categories which in turn has effect on their bottom line of business. According to
various sources of market research agencies, the definition holds as follows GST
is defined as a new tax regime that is currently levied on products and services
across India. Further, it is a uniform indirect tax which has replaced many of taxes
such as Excise duty, service tax, additional duties of excise and custom duty taxes
and surcharges on products and services.

Tax is not a temporary contribution; it is a mandatory financial burden that

is imposed by the government on the income and business profit of the people.
Every country impose tax on goods and services to generate revenue to meet their
expenditure. Undoubtedly, the Indian government also imposes taxes to meet up
its public expenditure that contribute to the welfare of the society. The power to
levy the tax goes together with central and state which is derived from the
constitution of India. The system of taxation can be traced in India from ancient
times and year after it has undergone certain changes and new reforms to make it
more standardized. Among them one of the milestone reforms that have taken

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place in the Indian tax system is the introduction of VAT and its transformation
into GST. In order to reduce the existing complexity in tax, a new tax reform was
made in 1st July 2017 to ensure uniformity in tax rates which is known as goods
and service tax .GST is a modified form of VAT where tax is levied on value
added at each stages of supply chain .It is a proposed system of tax that subsumes
all the existing indirect taxes .Under GST there would be only one law as GST
and would be one CGST rates and one SGST rates across states that ensures fiscal
autonomy, harmonization and transparency at each level(GST reforms and
intergovernmental consideration in India 2009). The government implemented
new tax system with a view to eliminate complexity, reduce tax burden, and
ensure compliance of tax payment. GST have a great impact on the various sectors
especially retailers, wholesalers, logistics and FMCG. Its implementation has
made serious difficulties among the business activities of traders especially of
retail traders. Of all the sectors GST will have far reaching impact on traders and
would result in reducing the prices of the goods supplied by such traders. About
1/10th of India's economic development is contributed by the retail sectors. They
play a major role in the economy as they act as an intermediary between business
and customers. Introduction of GST regime has benefited the growth of retail
sector. Under GST regime traders can claim input tax credit for tax paid on inter-
states purchase of goods, against tax liability incurred on sale of goods which were
not allowed under VAT system (goods sold in his own state). Although the retail
industry is benefitted with the introduction of GST, it would depend upon the rate
of tax applicable to each category of goods. Lack of clarity on tax rates, its
provisions, valuation of stock and fixation of price are the major challenges
retailers face.

1.1 Background of Goods and Services Tax (GST) In India

The implementation of the Goods and Services Tax (GST) in India was a
historical move, as it marked a significant indirect tax reform in the country. The
amalgamation of a large number of taxes (levied at a central and state level) into a
single tax is expected to have big advantages. One of the most important benefit of
the move is the mitigation of double taxation or the elimination of the cascading
effect of taxation. The initiative is now paving the way for a common national
market. Indian goods are also expected to be more competitive in international and
domestic markets post GST implementation. From the viewpoint of the consumer,

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there would be a marked reduction in the overall tax burden that is currently in the
range of 25% to 30%. The GST, due to its self-policing and transparent nature, is
also easier to administer on an overall scale.

When did GST start?

Several countries have already established the Goods and Services Tax. In
Australia, the system was introduced in 2000 to replace the Federal Wholesale
Tax.
GST was implemented in New Zealand in 1986. A hidden Manufacturer „s Sales
Tax was replaced by GST in Canada, in the year 1991. In Singapore, GST was
implemented in 1994. GST is a value-added tax in Malaysia that came into effect
in 2015. Let us discuss the events occurred in implementation of GST
chronologically 2000: In India, the idea of adopting GST was first suggested by
the Atal Bihari Vajpayee Government in 2000. The state finance ministers formed
an Empowered Committee (EC) to create a structure for GST, based on their
experience in designing State VAT. Representatives from the Centre and states
were requested to examine various aspects of the GST proposal and create reports
on the thresholds, exemptions, taxation of inter-state supplies, and taxation of
services. The committee was headed by Asim Dasgupta, the finance minister of
West Bengal. Dasgupta chaired the committee till 2011.

2004: A task force that was headed by Vijay L. Kelkar the advisor to the finance
ministry, indicated that the existing tax structure had many issues that would be
mitigated by the GST system.

February 2005: The finance minister, P. Chidambaram, said that the medium-
tolong term goal of the government was to implement a uniform GST structure
across the country, covering the whole production distribution chain. This was
discussed in the budget session for the financial year 2005-06.

February 2006: The finance minister set 1 April 2010 as the GST introduction
date.

November 2006: Parthasarthy Shome, the advisor to P. Chidambaram, mentioned

that states will have to prepare and make reforms for the upcoming GST regime.

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February 2007: The 1 April 2010 deadline for GST implementation was retained
in the union budget for 2007-08.

February 2008: At the union budget session for 2008-09, the finance minister
confirmed that considerable progress was being made in the preparation of the
roadmap for GST. The targeted timeline for the implementation was confirmed to
be 1 April 2010.

July 2009: Pranab Mukherjee, the new finance minister of India, announced the
basic skeleton of the GST system. The 1 April 2010 deadline was being followed
then as well.

November 2009: The EC that was headed by Asim Dasgupta put forth the First
Discussion Paper (FDP) , describing the proposed GST regime. The paper was
expected to start a debate that would generate further inputs from stakeholders.

February 2010: The government introduced the mission-mode project that laid the
foundation for GST. This project, with a budgetary outlay of Rs.1,133 crore,
computerised commercial taxes in states. Following this, the implementation of
GST was pushed by one year.

March 2011: The government led by the Congress party puts forth the
Constitution (115th Amendment) Bill for the introduction of GST. Following
protest by the opposition party, the Bill was sent to a standing committee for a
detailed examination.

June 2012: The standing committee starts discussion on the Bill. Opposition
parties raise concerns over the 279B clause that offers additional powers to the
Centre over the GST dispute authority.

November 2012: P. Chidambaram and the finance ministers of states hold

meetings and set the deadline for resolution of issues as 31 December 2012.

February 2013: The finance minister, during the budget session, announces that
the government will provide Rs.9,000 crore as compensation to states. He also
appeals to the state finance ministers to work in association with the government
for the implementation of the indirect tax reform.

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August 2013: The report created by the standing committee is submitted to the
parliament. The panel approves the regulation with few amendments to the
provisions for the tax structure and the mechanism of resolution.

October 2013: The state of Gujarat opposes the Bill, as it would have to bear a loss
of Rs.14,000 crore per annum, owing to the destination-based taxation rule.

May 2014: The Constitution Amendment Bill lapses. This is the same year that
Narendra Modi was voted into power at the Centre.

December 2014: India„s new finance minister, Arun Jaitley, submits the
Constitution (122nd Amendment) Bill, 2014 in the parliament. The opposition
demanded that the Bill be sent for discussion to the standing committee.

February 2015: Jaitley, in his budget speech, indicated that the government is
looking to implement the GST system by 1 April 2016.

May 2015: The Lok Sabha passes the Constitution Amendment Bill. Jaitley also
announced that petroleum would be kept out of the ambit of GST for the time
being.

August 2015: The Bill is not passed in the Rajya Sabha. Jaitley mentions that the
disruption had no specific cause.

March 2016: Jaitley says that he is in agreement with the Congress„s demand for
the GST rate not to be set above 18%. But he is not inclined to fix the rate at 18%.
In the future if the Government, in an unforeseen emergency, is required to raise
the tax rate, it would have to take the permission of the parliament. So, a fixed rate
of tax is ruled out.

June 2016: The Ministry of Finance releases the draft model law on GST to the
public, expecting suggestions and views.

August 2016: The Congress-led opposition finally agrees to the Government„s

proposal on the four broad amendments to the Bill. The Bill was passed in the
Rajya Sabha.

September 2016: The Honorable President of India gives his consent for the
Constitution Amendment Bill to become an Act.

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2017: Four Bills related to GST become Act, following approval in the parliament
and the President„s assent: • Central GST Bill
• Integrated GST Bill
• Union Territory GST Bill
• GST (Compensation to States) Bill
The GST Council also finalised on the GST rates and GST rules. The
Government declares that the GST Bill will be applicable from 1 July 2017,
following a short delay that is attributed to legal issues.

1.2Meaning and definition:

G- GOODS
S-
SERVICES
T-TAX
GST Meaning – GST is Goods and Service Tax is an indirect tax which the
Government of India is planning to levy on all goods and services apart from
those exempted by the GST law. The sole purpose of GST is to put an end to
multiple taxes like excise, CST, VAT, service tax which are levied on different
products, starting from the source of manufacturing, till reaching the end
consumer.

1.3 GST Definitions

Section 2. Definitions In this Act, unless the context otherwise requires,-

(1) ―actionable claim‖ shall have the meaning assigned to it in section 3 of
the Transfer of Property Act, 1882 (4 of 1882);

(2) ―address of delivery‖ means the address of the recipient of goods and/or services
indicated on the tax invoice issued by a taxable person for delivery of such goods
and/or services;

(3) ―address on record‖ means the address of the recipient as available in the records
of the supplier;

(4) ―adjudicating authority‖ means any authority competent to pass any order
or decision under this Act, but does not include the Board, the Revisional
Authority, Authority for Advance Ruling, Appellate Authority for Advance
Ruling, the First Appellate Authority and the Appellate Tribunal;

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(5) ―agent‖ means a person, including a factor, broker, commission agent,

arhatia, del creditor agent, an auctioneer or any other mercantile agent, by
whatever name called, who carries on the business of supply or receipt of goods or
services on behalf of another, whether disclosed or not;

(6) ―aggregate turnover‖ means the aggregate value of all taxable supplies, exempt
supplies, exports of goods and/or services and inter-State supplies of a person
having the same PAN, to be computed on all India basis and excludes taxes, if
any, charged under the CGST Act, SGST Act and the IGST Act, as the case may
be;

This part of the section therefore explains that aggregate turnover does not include
the value of inward supplies on which tax is payable by a person on reverse charge
basis under sub-section (3) of Section 8 and the value of inward supplies.

1.4 Features of GST

GST belongs to the VAT family as tax revenues are collected on the basis
of value added. Unlike in the case of a pure commodity-based VAT system, GST
includes services tax also. Similarly, input credit is given while calculating the tax
burden. Following are the main features of the GST as per the final agreement.

1. Taxes covered:

Most of the important indirect taxes of the centre and states are integrated under
the GST. The most important tax of the central government (in terms of tax
revenue collection) -the Central Value Added Tax (or Union Excise Duty),
Additional Customs Duty (CVD), Special Additional Duty of Customs (SAD),
Central Sales Tax (levied by the Centre and collected by the States, the fastest
growing tax revenue of the centre – Service Tax, the most important tax revenue
of the states – the state VAT (Sales tax) are now merged into a single tax under
the Goods and Service Tax. There are three important indirect taxes for the centre

the union excise duties, service tax and customs duties. Of these, the central
excise duties and service taxes are brought under the GST.

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2. Unified tax regime:

The GST integrates Goods and Service Taxes into one unified tax regime.
Previously, the goods and services were imposed and administered
differently.

3. The four-tier rate structure:

The GST proposes a four-tier rate structure. The tax slabs are fixed at 5%, 12%,
18% and 28% besides the 0% tax on essentials. Gold is taxed at 3%. The centre
has strictly demanded and got an additional cess on demerit luxury goods that
comes under the high 28% tax. Essential commodities like food items are
exempted from taxes under GST. Other consumer goods which are common items
will be taxed at 5%. 4. The new GST seems to have two standard rates – 12% and
18%. GST rate structure for the goods and services are fixed by considering
different factors including luxury/necessity nature.

4. Service tax rate under GST:

Under the GST, there is a differential tax structure. A low tax rate of 5% is
imposed on essential services. Common services are charged at 12% and some
commercial services at 18%. A tax rate of 28% on luxury services is also made.
Several services like education provided by an educational institution, Post
Offices, RBI etc. are exempted from service taxation. The standard GST rate on
services seems to be 18%. Services are taxed at a common rate of 15% previously.

5. Turnover limit:
Under GST and tax right over low turnover entities: GST is applied when turnover
of the business exceeds Rs 20lakhs per year (Limit is Rs 10lakhs for the North
eastern States). Traders who would like to get input tax credit should make a
voluntary registration even if their sales are below Rs 20 lakh per year. Traders
supplying goods to other states have to register under GST, even if their sales is
less than Rs 20 lakh. There is a composition scheme for selected group of tax
payers whose turnover is up to Rs 75 lakhs a year.

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6. Tax revenue appropriation between the centre and states:

The centre and states will share GST tax revenues at 50:50 ratio (except the
IGST). This means that if a service is taxed at 18%, 9% will go to the centre and
9% will go to the concerned state.

7. Components of GST:
CGST, SGST and IGST When the centre and states are merging their prominent
indirect taxes under GST, both should get their own share in the GST. For this, the
GST Council has adopted a dual GST with two components – the Central GST
(CGST) and the State GST (SGST).

8. Composition scheme under GST

The composition levy is an alternative method of levy of tax designed for small
taxpayers with turnover is up to Rs. 75 lakhs. The scheme can be availed by
manufacturers and restaurants. Other service providers can„t opt for the scheme. It
enables taxpayers to make payments at a flat rate under GST, without input
credits. An alternate upper limit of Rs. 50 lakhs is applicable in a few states –
Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura,
Sikkim and Himachal Pradesh. The objective of the optional Composition Scheme
is to bring simplicity and to reduce the compliance cost for the small taxpayers.

9. Right to tax on territorial waters:

Right to impose tax on economic activities that are done on territorial waters:
Here, the both centre and states have decided that states can impose and collect
tax on those falls within 12 nautical miles

1.6 Need for Study:

 To study about Goods and Service Tax and its impact on the economy.

 To examine benifits and opportunities of Goods and Service Tax.

 To Understand the concept behind GST.

 To learn the highlights of GST.

 To measure the pros and challenges of GST.

 To present further information of research work on GST.

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1,7 Objectives of the Study:

• To analyse the concept of GST
• To know various benefits of implementation of GST in India
• To study the impact of GST on retail shops
• To analyze pre and post GST Tax structure
• To understand the impact of GST on retail sector
1.8 Scope of Study:
This project concept suggests the introduction of GST in India and identifies
the impact it has on the retailers, if a comprehensive GST is implemented in India.
And what are the factors affect the retailers regarding GST particularly in
Davangere city.

1.9 Meaning and Definition:

To better understand the role of retail format in an economy and its
significance, let us first try to understand what actually retail is? And how it is
different from wholesale business? Retailing consists of selling merchandise from
a permanent location (a retail store) in small quantities directly to the consumers.
These consumers may be individual buyers or corporate. In the world of Trade and
Commerce, a retailer purchases goods or merchandise in bulk from manufacturers
directly and then sells in small quantities are known as Retail stores or shops.

Shops may be located in residential areas, colony streets, community Canter „s or

in modern shopping arcades/ malls. In fact, any organization selling merchandise
to final consumers -whether a producer, wholesaler or a retailer -is doing retail
business.

It does not take into account how the merchandise is being sold. While on the
other hand, retail format is a blend of product range, pricing, marketing and the
way the items are displayed. A retail-format will be suitable for a retailer does not
depend upon market practice but upon retailer „s budget, merchandise and the
need of the locality. A good format draws more footfalls and helps retailer a
platform to succeed and earn name and fame.

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Definition
David Gilbert defines Retailing in india following words ,”Any business
that directs its marketing efforts towards satisfying the final consumers , based
upon the organization of selling goods services as a means of distribution.”

1.10 Functions of Retailing

Retail trade performs many valuable functions for the trade and commerce as a
whole. Some of them are as follows:

1) Delivery of the goods to the end consumer

This makes shopping for all requirements quite hassle-free for the consumers. This
also facilitates consumption and maximizes consumer satisfaction. Because the
company cannot take responsibility of delivery to every single customer, it
appoints retailers. One of the functions of retailing is immediate delivery.

2) Is an essential part of the distribution chain

Because the retailer takes over the cumbersome task of distribution of goods
manufactured to the target market, the manufacturer is relieved of this
responsibility and can divert his resources to manufacturing activities.

3) Finances the wholesaler

While booking his order of goods with the wholesaler, the retailer pays some
percentage or the whole of the order price in advance. This helps the wholesaler to
carry on with his operations seamlessly. In some industries, it is the retailer who
pays cash to maintain stock and in others the wholesaler has to carry the stock as
paid capital. Nonetheless, financing is one of the major functions of retailing. A
retailer who does not contribute to financing will bring down the effectiveness of
the supply chain.

4) Stores the goods according to market requirement

The retailer invests his working capital in building a gamut of inventory reflecting
market requirements. He also sells the requisite quantity, however small or big, to
the final consumers satisfying their needs. The retailers know the complete
demand and supply potential due to their years of experience. Hence it is one of
the functions of retailing to balance the demand and supply as per external market
conditions.

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5) Lends a hand in manufacturer’s marketing initiative

Retailer plans and executes many advertising and promotion activities at the point
of purchase i.e. right in his store. This leads to gain in popularity of and
favourable market conditions for the product of the manufacturer.

6) Assumes storage and credit risks

When the retailer orders and stores a large quantity of goods from the
manufacturer, he makes sufficient provisions to store it safely for some days. This
involves costs. Also, there is also a risk of loss of these goods on account of
destruction, theft, spoilage etc. The retailer assumes these risks while storing
goods.

7) Extends credit facilities to the consumers and assumes credit risk

The retailer does so to encourage shopping. This adds to the vigour of commercial
activities in the economy. But there is also a risk that the customers won„t pay for
the goods bought or may return damaged goods to the retailer. This inherent risk
in trade is assumed by the retailer.
8) Offers wide variety of customers and enticing price range in a product line
In order to attract more customers, a retailer offers a wide range of merchandise at
attractive prices. This results in higher consumer satisfaction and higher standards
of living in any economy.

9) Provides convenience in shopping

Retailers try to set up their shops nearby housing areas or near parks, schools – the
areas where the customer finds it very convenient to shop. This enhances the
consumer welfare.

1.11 Methodology

The methodology is the plan. Structure and strategy of the research work
that sets out to obtain answer to study. Methodology can be considered as a
primary element in any type of study. It means the methods used to gather the
information related to study. The success of research is purely based on data
collection. The following methods are used to gather the data are as follows.

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• Primary data
The first-hand data has been collected through a structure questionnaire.
The selection of respondents is based on simple random sampling. The survey was
conducted through questionnaire for 30 respondents which consist of equal
number of retailers in Davangere city.
• Secondary Data
There are the source containing Data which has been collected and
complicated for another purpose. The secondary source consisting of the readily
available resources and already complied statistical statement and report whose
data may be used by researchers for their study. The major sources of secondary
data are Standard reference books
• Journals
• Research Paper
• Web sites.

Limitations of the Study:

• The study focusses on goods and services tax in India but survey covered
only Davangere City.
• The study is based on the responses of the respondents.
• The study concentrated only on the implication of GST as based on
perception of the respondents but ignored aspects

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Chapter Scheme:
Chapter: 1: Introduction
This chapter contains introduction, Review of Literature, need for the study,
scope of the study, objectives of the study, limitations of the study, methodology
used for data collection and also chapter scheme.
Chapter: 2: An Overview of GST in India
This chapter contains background of Goods and Services Tax in India, meaning
and definitions of GST, features of GST, scope of GST, objectives of GST, GST
advantages and disadvantages, need for GST in India.
Chapter: 3: Overview of Retailing Sector in India
This chapter contains introduction, meaning and definition, functions of retailers,
classifications of retailers, GST impact on retail sector and retailers in India.
Chapter: 4: Data Analysis and Interpretation
This chapter contains data analysis and interpretation.
Chapter: 5: Summary of Findings, Conclusion and Suggestions
This chapter contains Summary of findings of the study, conclusion to the study
and suggestions

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