Wholesalers dump stocks on retailers to escape GST

Amidst the red-carpet entry of the GST and the confusion among traders, the retail sector is witnessing a curious development.

Published: 03rd July 2017 09:20 AM  |   Last Updated: 03rd July 2017 09:20 AM   |  A+A-

Express News Service

KOCHI: Amidst the red-carpet entry of the GST and the confusion among traders, the retail sector is witnessing a curious development. The wholesalers are dumping their existing stock on agents and retailers across the state to avoid paying higher GST rate. The retailer godowns are overflowing with stocks which they say can last for two months. The payments for these goods can be made once they sell off the products.

Under Goods and Services Tax (GST), which has come into effect from Saturday, the levy on the existing stock will shoot up to 18 per cent from 12 per cent. Simply put, the wholesalers, who have paid 12 per cent excise duty, will need to cough up another six per cent on inventories they held on June 30, and hence this move.

“My supplier has dumped his inventories at my store to evade paying GST. They need to pay higher tax on existing stock from July 1. To avoid the higher tax burden they are dumping stocks on us,” said Bony (name changed), who runs a stationery shop at Kalamassery. 

According to him, stocks were delivered on credit by his supplier. “I now have stocks for at least two months in my warehouse,” he said. Bony does not issue bills for purchases made from his shop.

He said sales tax officers have assessed his accounts recently and conveyed to him he will not come under the GST as his revenue is below Rs 20 lakh. Under the new tax regime, shops with less than Rs 20 lakh turnover don’t have to pay GST, and those below Rs 50 lakh will come under a composition scheme, paying a flat tax rate.

Big wholesalers and establishments, whose turnover is above Rs 50 lakh, are required to pay GST rate on old stock when they sell them in July or the coming months.

Suresh Kumar, a city-based cost accountant, told Express  this was happening as no one wanted to incur a loss on stocks purchased before July 1. 

“The wholesalers do not want to incur a loss. So, this could well be the ground reality across the country,” Kumar said.  The government is likely to adopt a lenient view on such activities initially, he said. 

N Ramalingam, associate professor of Gulati Institute of Finance and Taxation, said the stocks with the retailers will be unaccounted stock, but the tax officers will be liberal for the first two months. 

“As per our study (Gulati Institute), tax evasion is in the range of 40 per cent. Under the GST, it will come down to 20 per cent. Once the old stocks are cleared, we expect a clean and transparent regime,” Ramalingam said. 


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