A year after the much-talked-about goods and services tax (GST) was introduced, the retail sector may have recovered nearly completely, but experts say more needs to be done to make compliance easier.

The retail industry, which employs 8 percent of the workforce and accounts for over 10 percent of India’s gross domestic product, was among the sectors most directly affected by GST’s rollout.

The GST replaced a slew of state and central taxes such as excise, VAT and service tax, among others. The value-added nature of the tax did away with cascading tax (or tax on tax), its pan-India rate did away with rate differentials across the country while the requirement of online filing promised to make compliance easier.

But in practice, retailers found compliance processes to be complex and time-consuming.

Not only did they have to implement a slew of changes in the way they bill for products and services, they had to ensure they maintained digital records and file multiple returns.

“The kind of compliance required is significant,” said Rakesh Biyani, Joint Managing Director, Future Retail.

GST invoices require issuers to fill out mandatory details such as GSTIN, place of supply, HSN (harmonized system of nomenclature) codes, besides other details.

Biyani added that the government had been working on improving compliance processes. “Hopefully, there will be a lot more simplicity.”

Since the inception of GST in July last year, government has made 376 changes by amending rules, issuing clarifications and circulars related to refund, filing, exemption and rates.

Govind Shrikhande, Managing Director, Shoppers Stop, said that the changes are not enough. “We have a way to go in terms of rationalization of procedure,” he said. “GST is a good concept but the government needs to learn a little faster and execute things faster. If the government also steps in by making processes easy, it will help the sector.”

But Kumar Rajagopalan, Chief Executive Officer, Retailers Association of India (RAI), said the government had been proactive in taking feedback and implementing relevant changes.

So what are the positives from GST’s rollout?

According to Deloitte India's annual CFO Survey, 77% CFOs believe that GST has had a positive impact on the overall business. Moreover, 57 per cent of CFOs are now willing to take greater business risks, as the next couple of years are expected to be a period of consolidating gains from recent reforms.

"Introduction of GST necessitated a relook at the existing business models by CFOs. It had far-reaching implications on business functions, where the impact was on taxation, finance, legal, IT systems and supply chain. Overall, GST's value proposition has been appreciated by CFOs," said Porus Doctor, Partner, Deloitte India.

As per the survey, the GST impact reflected better on revenue and supply chain, and 58% CFOs saw an improvement in ease of doing business.

“For most retailers it has changed the way the distribution topology has been,” according to RAI’s Rajagopalan.

The structure of the supply chain is influenced by differential taxes based on geographical location. By eliminating multiple state taxes, retailers are encouraged to consolidate their warehouses instead of maintaining one in each state to avoid central tax.

“Many retailers are now able to work directly with suppliers and are able to take an all-India view of items rather than any individual store view or individual market view,” Rajagopalan added.

This has effectively brought down the overall cost of products as inventory cost and inventory carrying cost came off. This has directly affected the final cost of the product bring the selling price down.

Sales trend

Soon after GST’s rollout, the disruption was all too visible. Ahead of the tax’s implementation date (July 1, 2017), many consumers had advanced their purchases to the first (April-June) quarter of the fiscal. (Do we also want to talk about de-stocking?)

As a result, quarter on quarter sales (Q2 vs Q1) dipped at an aggregate level.

Supply chain, which was hampered because of GST seemed to show some signs of regularisation from mid-Q3.

Under the new regime, monthly frequency of reporting was required for businesses with annual turnover more than Rs 75 lakh.

Every single month, there are three dates in sequence for voucher uploading, consolidation and claims, with a daily penalty beyond deadlines crossed, added to interest on any tax credits denied.

However, small dealers/distributors, mainly in tier 3/4/5 regions of India, had a hard time adapting to the new compliance regime.

This formal voucher-based monthly reporting has dealt a serious blow to the risk-sharing mechanism underpinning the efficiency of the Indian retail supply chain, experts said.