Afraid of GST, retailers are limiting their purchases

Afraid of possible losses after the July implementation of goods and services tax (GST), many small retailers and wholesalers have limited the quantity of products they buy from consumer goods companies.

The fear is a result of the worry that once GST gets implemented, it would apply on the goods they sell, no matter the date that they were bought or whether VAT, excise duty and other levies have already been paid.

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On its part, the government has announced that the seller would get a 40% deemed credit on the Central GST (CGST) paid, but as per industry experts, there could still be some loss, given that CGST is just half of the total GST, as the remaining belongs to states. This could lead to the credit not being able to offset the already paid taxes.

"Many distributors and retailers are reluctant to buy products that they think they would not be able to sell before July 1 when GST comes in," Pratik Jain, leader, indirect tax, PwC, told ET. "This is mainly due to the 40% deemed credit and the loss that can happen to retailers and distributors due to the differential rates and (ambiguity on) who shall bear that."

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The retailers and wholesalers of consumer goods and automotive sectors seem to follow a new trend, as per which they would be buying what they would be able to sell till July 1.

"The problem is that many retailers are worried. First, they are not sure about the rates and, secondly, they are not even well informed about GST," said Praveen Khandelwal, secretary-general, the Confederation of All India Traders. "Some retailers do not want to fall in the trap where they end up making losses although I think the government should come out more clearly and say that there would be no loss and there would be 100% tax credits on such tax losses."

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