Disunion between essential and non-essential goods during Covid-19 may percolate to GST

By Harpreet Singh and Harsha Razdan

Covid-19 has altered the best way we work, store and talk with individuals, greater than another occasion within the current previous. This pandemic continues to affect virtually all industries at an unparalleled scale, together with shopper markets and retail, which has witnessed important disruption over the previous few months.
During the lockdown, the shoppers are stockpiling essential goods akin to fruits and greens, family care objects and preventive well being care and hygiene merchandise. Further, with anticipated journey limitations and financial considerations sooner or later, it’s anticipated {that a} new regular would emerge the place shoppers would anticipate to purchase extra of essential objects (should have goods) akin to family, groceries, well being care; whereas slicing again on luxurious and vogue merchandise (good to have goods).

The impact of this disunion of shopper pattern into essential and non-essential classes is probably going to percolate to the taxation regime as nicely. As a consequence, tax concerns leading to price saving measures, credit score optimisation, and many others. would fall beneath the brand new ‘must haves’ class vis-a-vis routine compliance and filings issues, which may not warrant any important consideration or administration time.

With the plummeting demand for discretionary goods, one can anticipate the patron market gamers to provide a number of low cost schemes akin to upfront distinctive money reductions, purchase one get one free, two within the value of 1 and many others. Further, some shopper retailers may additionally provide large-scale amount reductions so as to clear up the inventory and perk up the client sentiments as soon as the lockdown is lifted.

Accordingly, analysing such schemes from a GST perspective i.e. if enter tax credit score (‘ITC’) reversal is required beneath GST on provides made beneath such schemes would turn into essential, particularly provided that the mentioned points are litigious. Similarly, GST implications on advertising devices akin to vouchers, money playing cards, low cost coupons (as an illustration, timing of fee of taxes in case of vouchers, if such devices qualify as actionable claims and many others.) would even be related.

The pandemic additionally had a detrimental affect on shopper marketplace for perishable goods or goods having an expiry or shelf life. GST supplies that ITC is to be reversed for goods destroyed, written off or disposed of. Accordingly, destroying or disposing off perished or expired goods would entail credit score reversals. However, there’s some controversy round whether or not ITC reversal is required solely in respect of goods absolutely written o? from books of account or additionally in respect of goods which have been partially written o?.

Further, with growing financial austerity, a surge in non-payment of consideration/money owed, return of provides and many others. is predicted. Albeit GST regulation permits the taxpayer to declare a set-off from its output legal responsibility in case of return of goods, poor provide of goods/providers by issuance of GST credit score observe, no tax changes are permitted in case of bad-debts. Further, there may very well be extra traction on restore/ alternative of goods in these instances of austerity. Accordingly, GST concerns on dangerous money owed, return of goods, valuation/therapy of in-warranty, off-warranty repairs must be cautiously thought of by the businesses.

In the instances to come, a brand new world order may come to gentle, whereby retailers throughout various classes can not rely completely on their offline presence even after the lockdowns are known as off. They can have to inevitably regulate to the brand new norms of online shopping for. This will turn into much more related for classes like groceries and private care the place beforehand the propensity to purchase on-line was low. Accordingly, enterprise can be required to orient themselves with the GST compliance associated to on-line enterprise (akin to registration requirement, tax collected at supply and many others.).

Manufacturers and retailers in search of to profiteer from surge in demand of shopper goods, due to Coronavirus outbreak may very well be beneath the federal government’s lens the place an arbitrary improve within the costs is made. They must be cautious in regards to the anti-profiteering provisions beneath GST legal guidelines, which mandate passing of any profit obtained on account of price discount or extra ITC to the shoppers by means of commensurate discount in costs.

It is crucial for the companies to re-orient their protocols, practices, SOPs and function in an environment friendly method for crusing by this troublesome time and one space that would want some re-engineering is GST. Companies would absolutely get wiser whereas discharging tax legal responsibility earlier than the federal government. In addition, firms in shopper markets should analyse and implement money optimisation measures akin to deferring the tax legal responsibility by deferring the time of issuance of invoices, enjoyable vendor fee phrases for reverse cost transactions, expedite submitting of refunds and many others.

Similarly, credit score optimisation measures akin to robustness in availing Input tax credit score, provisional availment of Input tax credit score with out matching it with GSTR-2A and many others. must also be evaluated. Some of the aforesaid measures may end in important financial savings in money flows and credit which may enhance the working capital administration.

It can be troublesome to predict how issues would unfold sooner or later for the patron market sector. Nonetheless, some little bit of pro-activeness, evaluation and implementation of tax measures may assist not solely in saving the ‘moolah’, but in addition keep away from pointless tax controversies and exposures.

Harpreet Singh is Partner – Indirect Tax, KPMG in India and Harsha Razdan is Partner and Head – Consumer Markets and Internet Business, KPMG in India.

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