25 October 2016 |

As the GST council continues to meet in October and November to iron out implementation issues for GST roll out in April 2017, a few things are increasingly becoming clear:

1. Regulatory compliance and implementation capability would require significant change on how retailers do their business.
2. Technology is going to play an increasingly important role in tracking and reporting GST credits throughout the supply chain.

In this context, I envisage a few critical places where retailers can expect changes.

Product pricing, shelf labeling and promotions

In certain verticals, shelf labeling is the most visible change expected – reflecting revised pricing of the product inclusive of GST. This means that advertisements for some consumer goods need to reflect the actual sales price and not ‘taxes extra’.

In verticals where MRP is used, a limited impact could be expected depending on how price promotions are advertised. This is because taxes would have to be computed on product price before discount. For example, how would this reflect in a ‘Buy Two, Get One Free’ or ‘70% discount on MRP’ type of offer? These would require significantly different tax treatment than the current practice. Similarly, the way POS/Retailer calculates cost (or sales price, depending on how you see it), will require change as some of the GST credit needs to be factored too. GST will impact how taxes are computed on product promotion and thus influence pricing strategy.

Warehousing and distribution

Almost all distributors and large retailers who own warehouses and e-commerce players are expected to do major re-planning of their warehouse location and transportation strategy. GST would replace various state and local taxes with a unified tax that removes barrier for inter-state taxation. Over the next 12 to 24 months, warehouse consolidation is expected. This is likely to make an impact not just in retail business, but also distribution, transportation, real estate and even manufacturing. Warehouses are expected to get bigger over time requiring better technology as the scale of material handling increase - be it volume, SKUs or distribution area. These will also drive changes in tax and shipping invoices.

GST reporting

GST reporting will be a completely new requirement for most retailers and will drive significant MIS changes in the back office. GST or IGST has two components – Central GST and State GST, both of which need to be computed depending on the source of material being inter-state or in-state. In addition, the government is already thinking of having different slabs of GST for different types of goods and well as cess on select goods. All of these need to be not only computed, but also reported for each vendor. Most current technology systems largely do not have provision of certain required fields to collect appropriate vendor information as well as taxation category that can support such computation and reporting.

Other ramifications

As GST rolls out through the supply chain, the government is likely to leverage technology to bring in better enforcement measures. This would force existing players to get registered under GST, which in turn - unless supported by right use of technology - adds additional work for these players. GST compliance will force supply chain efficiencies and could help retailers and distributors gain market share provided they are proactive in planning their strategy around pricing, promotions distribution and reporting.