Indian Sellers Collective, an umbrella body of trade associations and sellers across the country, has urged the finance minister, Nirmala Sitharaman and the GST Council not to accept some of GST rate rationalisation. The suggestion includes the proposal for inclusion of a special rate of 35 per cent on some products.
The sellers body opinionated that a fifth GST slab of 35 per cent on demerit goods such as aerated beverages, cigarettes and tobacco, and pricing-based rate structure will materially and fundamentally alter the country’s GST framework with devastating outcomes.
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It was apprehended that these recommendations violate both the letter and the spirit that it will be a ‘good and simple tax’. On the contrary, it will hurt the profit margins of the retailers, lead to compliance nightmares and fuel a parallel economy. This move will primarily benefit Chinese producers who dominate the market of cheap products at the cost of Indian producers.
The increased tax rates may lead to higher prices, reducing affordability and potentially slowing economic growth. The retailers point up the need for a balanced approach to taxation to ensure sustainability and competitiveness in the sector.
A 35 per cent tax on demerit goods like tobacco and aerated beverages will exponentially grow their illicit market, and a large number of sellers will move out of the formal economy. A pricing-based rate structure will trigger either manipulation or re-engineering of business models to beat the system. For small and mid-tier sellers, this will mean compliance nightmares and a very high risk of litigation.
A hike in tax rate may impact the sales volume of retailers and manufacturers, it may pressurise profit margins.
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