Highlights

• Companies from sectors as diverse as garments and white goods are using their dealers to offload stocks through discounts.
• They are doing so to ensure that the tax burden on dealers does not rise after the new tax regime kicks in from July 1.

NEW DELHI:

 A leading private bank has sent out mails to its customers suggesting that this may be the best time to buy cars, since GST may push up prices — something that the government has denied. Even the automobile industry admits that barring hybrids and some small diesel-powered vehicles, prices may not increase.

Banks are not the only ones playing on the ’fear’ of GST to prop up business. Companies from sectors as diverse as garments and white goods are using their dealers to offload stocks through discounts.

They are doing so to ensure that the tax burden on dealers does not rise after the new tax regime kicks in from July 1. A Honda executive said that dealers have been asked to advise clients that if their tax liability falls after GST comes into force, the excess payment will be refunded.

Manufacturers say dealers are pushing them to offer discounts. "Most of the offers are due to traders’ apprehension over cash flow issues during the first few days of GST implementation. But business will flourish once the teething problems are sorted out," said Panasonic India director of sales and service Ajay Seth.
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Dealers’ apprehension about GST stems from the so-called transition rules that will not allow them to claim over 40-60% tax credit on excise duty paid by the manufacturer on goods in their showrooms after June 30.

For refrigerators, ACs, computers and mobiles which cost over Rs 25,000 and come with a serial number, rules have been eased to enable dealers to claim full credit as evidence of tax paid by the manufacturer can be transferred to them. But much of these goods are below Rs 25,000.

Companies are also expecting supply disruptions towards the end of the month due the switchover. "Due to this, we are seeing large scale clearance sale happening for automobiles, apparels and other white goods companies to clear all pre-GST stocks," said Rituparno Mukhopadhyay, executive director at consulting firm Pricewaterhouse Coopers.

"Everybody wants stock level to be at a minimum," said Harkirat Singh, MD of Woodland, which sells footwear and apparel. "Apart from our own stores, some of the large modern retail partners that we work with have also decided to get rid of their slow moving items and summer lines. But we won’t increase prices after GST rollout. We have calculated that there will only be a 1% increase in prices that we can absorb."

Even white goods firms said the tax burden won’t rise due to input tax credit, which means companies will get credit for all taxes paid — from state VAT to service tax on raw material, components, packing material and transport used as inputs during different stages of manufacturing.

 15 Jun 2017, 09:52 AM