GST levy to provide level-playing field to organised retail: CARE ratings

Retailer can set-off rental cost against the input tax credit available for other goods & services

Post implementation of the Goods and Service Tax (GST), organised retailers are expected to get a level-playing field, edging out unorganised players in the medium-term, a report on retail industry has said.

While the tax on branded apparels (textiles) is not known, a revenue neutral rate for apparel industry would be 12-15 per cent, the report by CARE Ratings said.

"Any rate above this would affect demand in the short term as companies will pass on hikes, if any, to consumers," the report noted.

"Nevertheless post the initial interruptions, the GST would reduce competition from the unorganised sector and provide a level pitch to the organised branded players," it pointed out.

Also, with the current tax regime, retailers have been paying service tax on most of their operating costs.

For example, rentals paid, which constitute about 10-15 per cent of the total operating cost of a retailer, attracted a service tax and had no input credit for the same, the report explained.

However, with GST, the retailer will be able to set-off the rental cost against the input tax credit available for other goods and services, it explained.

With the GST being a consumption based tax regime, retail industry would now come under the sharp focus of various states, the report noted.

The GST Council last month fitted over 1,200 goods and 500 services in the tax brackets of 5, 12, 18 and 28 per cent.

The council in its meeting on Saturday cleared the pending rules, including transition provisions and returns, while all the states agreed to July 1 roll out of the GST.