GST Impact On Festive Season- No Freebies!!

GST impact on festive season

GST impact on festive season

The festival season in India is fast approaching with Rakhi, Durga Puja, Diwali and many other celebrations just around the corner. The festival season in India is synonymous with shopping, when people splurge on everything from clothing to jewellery and food items. Retail shops, branded stores and malls in the pre-GST (Goods and Services Tax) Era used to make the most of this season and tried to woo consumers with hefty discounts and freebies. The consumers in India used to be spoilt for choices.

But not anymore. You will no longer get that free tea-set with a certain amount of purchase of clothing, or a free packet of packaged food with a packet bought.

Post-GST, the consumer goods companies are perforce thinking of new strategies to woo customers because of the following reasons:

  • Gift vouchers, discounts and freebies offered previously will also come under the purview of GST.
  • Input tax credit (deduction of tax of as per purchase price of input) can be availed only for products which have economic value, in short, which have a price tag. The deduction cannot be availed on any product which is of zero value, i.e. which is being given free to a customer. This would constitute a double loss for the consumer goods companies, for, while they are purchasing goods, they cannot avail deduction and also have to pay a GST on it.

The retailers have not yet made a smooth transition to the new tax regime with confusion regarding the amount of GST to be paid running rampant. To add to their woes, this year the festivals have arrived early.

  • Rakhi made with the traditional Indian thread will attract nil GST, whereas the fancy ones will come under the purview of GST and will be taxed according to the different materials used making things complicated not only for the manufacturers but also the consumers.
  • With chocolate and Indian sweets attracting different GST rates, there was ambiguity regarding what GST rate would be paid on Chocolate flavoured Indian Sweets. However, the government has removed any such ambiguity and stated that all Indian sweets would attract a GST of 5%.
  • In Bengal, the Kumartuli potters are the busiest creating idols of Goddess Durga during this time of the year. This year the new tax regime has created a lot of confusion among the potters as well as the consumers regarding the budget for an idol.

As of now, all the retailers in the Indian market will go in for upfront discounting (straight discounting is rate applied without compounding). The following well known retailers in clothing as well as the food industry are planning the following:

  • Vero Moda, AND, and ONLY have decided to opt for straight discounting.
  • Parle Products are doing away with buy one get one free offer, and going in for upfront discounting.
  • Dabur and Marico will be opting for combo packs and price-offs.
  • Dominoes and Pizza Hut will no longer have the buy one get one free offer. To put things into perspective, now the sales pitch of Pizza Hut is 2 pizzas at 50% off.

Impact On Consumers

While the consumers will be the centre of attraction this festive season too, with the retailers trying to woo them, they will no longer have the satisfaction of getting a gift voucher for the next shopping spree, or a gift in kind which almost always is more pleasurable as it can be seen and felt. The pleasure of discount availed is somewhat momentary, but digging into that free pizza extends the pleasure for a while longer and takes it to the all-new level.

As already mentioned, festivals are synonymous with shopping, but this year with the absence of freebies and gift vouchers, the shopping may be limited to only what is required. People will not go overboard in shopping for something they don’t really require just for the sake of a free gift. This does come as a piece of good news for us, the consumers.


Read More About  GST

What is GST?
How to register for GST?
Various Goods and Services Tax forms
GST Rule Changes
Implementation of the GST in India
Costlier Or Cheaper Under GST?
Revised GST Rate List
Different GST Return Forms