Associate Director - Research & Real Estate Intelligence Service JLL India
GST impact on retail: Benefits will pass on to all stakeholders
Much of the bottomline of the textiles and apparel industry is quantified by retail. With the Goods and Services Tax (GST) very much a reality now, Subir Ghosh spoke to Rohan Sharma, Associate Director – Research & Real Estate Intelligence Service, JLL India, about his understanding of how GST will impact the retail sector. Sharma believes the law and its impact will be seen once implemented, and that there will be evolution and learnings only once actual implementation starts. Moreover, the benefits of a unified tax regime will pass on to all the stakeholders, viz. manufacturers, distributors and retailers.
At which stages of the value chain, will the Goods and Services Tax (GST) have an impact on the retail sector? Which of these would be the most crucial?
The GST envisages the taxation based on the destination principle, which means tax will be payable at the place of supply and consumption end of the retail chain is where the tax credit will stick. What is essential to note is that the cascading tax input at the input goods and services level shall be available to use as input tax credit at the output tax level, and this shall be applicable for the central as well as the state GST. The seller under this regime will pay the GST on value addition while availing the tax credit on his purchases. The idea of input tax credit will have an impact on the entire value chain. The benefits will pass on to all the stakeholders, viz. manufacturers, distributors and retailers. The overall impact shall be that goods will be less expensive unlike how value added at every stage of the retail chain was subject to taxes of different variety which put additional costs to the final product pricing and made is more expensive. One also need to note that tax payable on goods shall be eligible to be set off against tax payable for services which is likely to provide relief from service tax on rents for retailers.
Since movement of goods will apparently become easier with the introduction of GST, will this boost e-commerce more or bric-and-mortar retail?
The impact shall be for both, as manufacturing as well as distribution centres can be put up by both seamlessly across states without any taxation considerations. Brick-and-mortar retail shall have an added advantage of availing tax on goods as credit against service tax being paid on rents. This shall allow them cost savings on maintaining their physical retail stores. This shall aid business margins and provide support to the physical retail category. For online retailers, the local players are likely to face higher GST than the excise duty being currently paid.
Prices of goods and services for consumers is one thing. Real estate prices are quite another. How do you see this playing out in the near future? Do you see occupancy rates where floors are vacant rising? Or do you see proliferation of more retail outlets, including malls?
Real estate prices are likely to remain within their existing range with increments only likely in select, superior mall projects. Also, with the input tax credit helping save service tax, retailers would be keen to explore new places for store openings. However, business considerations and strategic growth plans are likely to remain key drivers for their future expansion. New malls are also being planned; however location, positioning and developer ability to run successful malls in the past remain paramount to creating a successful retail destination. Prominent malls are operating on higher occupancies which reflect the confidence of retailers with regards to consumption. Also, malls are being positioned as destinations with experiential shopping being the keyword to attract shoppers.
Do you foresee mergers and acquisitions (M&A) on the retail front? Are retail chains going to make a comeback? Either way, why exactly?
Larger players will continue to look for strategic M&A to increase their product spread. Also, brand repositioning and widening the product offerings may result in select acquisitions. Many foreign retailers are setting up shop in India and their entry augurs well for the retail business. Physical retail growth will continue to be driven by business considerations and we are unlikely to see a spurt in store openings. Growth will be determined by strategic plans for under-served markets, upcoming locations and product offerings in established retail corridors.
States are yet to agree on the rates. How much do you think the rate itself will have an impact? Do you see benefits accruing to the retail sector to be uneven across states?
There will be a unified rate across the states, so benefits to physical retail are likely to be uniform. We would not like to comment on the actual rates, but the removal of multiplicity of taxes and the resultant cascading effect on costs will provide impetus to retail business and should allow for healthy growth going forward. Despite likelihood of higher rates under GST, the overall understanding is that cost of goods will be lower due to the provisions of input tax credit and that should help business and the consumption story.
And last, how long will it take for the GST regime to show results on the ground? Which are the elements that will show immediate results, and which ones will take time to coalesce?
While GST is considered a game changer, the law and its impact will be seen once implemented and our thoughts are that there will be evolution and learnings once actual implementation starts, and the law and authorities will be agile to respond to any demands from various industries and in the medium to long term, India becoming a unified marketplace will help us grow as a nation. The impact on the retail consumption side of goods and services should be felt quickly upon implementation of GST.
Published on: 12/09/2016
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