Indian Sellers Collective, an umbrella body of trade associations and sellers across the country,has urged the Finance Minister and the GST Council to reject the recommendations of GoM (Group of Ministers) on GST Rate Rationalization. The sellers body believes that a new fifth GST slab of 35% and pricing-based rate structure will materially and fundamentally alter the country’s GST framework with devastating outcomes. 

“These recommendations violate both the letter and the spirit of PM Modi’s promise of GST to the citizens of India that it will be a ‘good and simple tax’. The proposed, materially different, GST framework would neither be good, nor simple. 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,” says the press statement released by the body.  

“All the gains of the GST regime will be wiped out, with permanent damage to the vast age-old retailer network of India, if the GoM recommendations are adopted,” said Abhay Raj Mishra, Member & National Coordinator, Indian Sellers Collective. 

He explains this further, “A 35% tax on demerit goods like tobacco and aeriated 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.” 

“Traditional Indian retail is already being eroded by e-commerce and quick-commerce, and such a massive shift in GST will be its final death knell. The GoM has been misguided by vested interests who want Indian retailers and intermediaries to weaken and become subservient to their agenda,” he concluded. 

Indian Sellers Collective has identified 5 immediate fall-outs which will hurt the business environment:  

1. Graded GST rates will make goods with incremental features more expensive, thereby denying middle-income people the opportunity to buy these products as this will be beyond their capacity to pay. This is regressive and will result in keeping the poor living like the poor. 
2. A 35% tax on demerit goods like tobacco and aerated drinks will put these products out of reach for the common man, forcing them to choose illicit, inferior, and unsafe options like smuggled and fake bottled beverages and cigarettes that have brand lookalikes, are cheaper for consumers and can have worst health impact on those who don’t have the money to pay for illness. Also, the market for demerit goods will be ruled by illicit and smuggling syndicates with small retailers subservient to them in order to survive.  
3. Too many slabs and rate-based sub-slabs will make compliance a nightmare for small to medium business owners, who may prefer to return to the cash economy. This will also lead to manipulation and under-invoicing, with dire litigatory consequences. 
4. Tax collectors, focused solely on revenue generation with disregard for social impact, may be tempted to push more goods into higher tax slabs, requiring reclassification and inventory recalibration, forcing frequent shifts in business models, resulting in a long string of litigations. This will also breed corruption in the tax management system. 
5. An overcomplicated tax system, rising costs of superior goods, business models requiring frequent changes, rising corruption, and a thriving black and cash economy will kill small and mid-sized retail businesses and eventually hurt investor sentiment.