The Retailers Association of India (RAI) has urged the government to reconsider the price-based GST rates proposed by the GST Council’s Group of Ministers (GoM). The association argues that these changes could have far-reaching consequences for the retail sector, consumers, and India’s broader economic goals.
What is Price-Based GST?
The GoM has suggested shifting premium goods like shoes and apparel priced above ₹15,000 and watches priced above ₹25,000 to the 28% GST slab. This marks a significant increase from the current 18% GST rate, making it a price-based GST structure for high-value items.
Key Concerns Highlighted by RAI
| Concern | Explanation |
|---|---|
| Encouragement of Counterfeits | Higher GST rates could lead to an influx of counterfeit and illegal goods, hurting legitimate businesses. |
| Impact on Premium Sales | Price-sensitive consumers may opt for overseas purchases or avoid premium products altogether. |
| Revenue Shortfall | Reduced sales volumes could decrease GST collections instead of increasing revenue. |
| Global Competitiveness | Higher prices might render Indian goods uncompetitive in global markets, affecting export potential. |
| Make in India Initiative | Elevated GST rates could undermine the Make in India initiative, making local products less attractive. |
Retail Industry’s Perspective
RAI represents over 13,667 retail members and 600,000 stores across India. The association has consistently voiced concerns over the unintended consequences of tax policies that increase compliance burdens and costs for businesses.
Economic Analysis: Impact of Price-Based GST
- Decline in Retail Sales:
- Premium products may experience lower demand as consumers turn to cheaper alternatives or unofficial channels.
- This shift could negatively impact overall growth rates, taking the sector back to pre-2018 levels of 5-6% annually.
- Reduced GST Collection:
- Contrary to expectations, higher GST rates may reduce revenue due to shrinking sales volumes and tax evasion.
- Global Market Competitiveness:
- Indian premium products could struggle to compete in global markets due to higher production and pricing costs.
- Complex Taxation:
- Introducing multiple GST rates for products with the same GST codes creates unnecessary compliance hurdles.
RAI’s Recommendations
RAI has urged the government to:
- Maintain Current GST Rates: Avoid increasing GST on premium goods to prevent market distortions.
- Engage Stakeholders: Consult with retailers and industry experts before implementing price-based GST.
- Simplify GST Structures: Ensure a uniform tax rate to improve the ease of doing business and reduce compliance complexities.
- Support Make in India: Promote competitive pricing for locally manufactured goods to align with India’s Make in India and export goals.
Conclusion
India’s retail sector is at a pivotal moment, riding a wave of growth in premiumization. However, introducing price-based GST rates could derail this progress. As RAI points out, such policies risk driving consumers toward illegal markets, shrinking sales volumes, and undermining revenue collections.
The government must carefully weigh the long-term implications of such changes against its broader goals of economic growth, global competitiveness, and the success of initiatives like Make in India. By engaging stakeholders and promoting inclusive tax policies, India can ensure sustainable growth in its retail sector.
“Simplifying taxes today paves the way for stronger growth tomorrow.”