V-Mart to pass on full 7% GST hike, discounts on old stocks may be cut: CFO.

Fashion retailer V-Mart will pass on the full 7 percentage point GST rate hike on apparel, which is effective from January 1, 2022, and if the government does not allow the change in the MRP tag of the existing stocks then the company will cut their discounts on them to mitigate the cost impact, said a senior executive.

“The 7 percentage point hike is a significant one. We will have to pass on the increase. For the fresh stocks, we have already indicated the new pricing to our vendors and the manufacturers. For the old stocks, we have two options; if the government allows us a change in the MRP tag, then we don’t have a problem, but if they don't allow then we will reduce discounting,” V-Mart CFO Anand Agarwal told ETCFO.

The government on November 18 announced an increase in GST rates on textiles and apparel to 12 per cent from 5 per cent to rectify inverted duty structures. Inverted duty structures are where there is a higher tax on the input than the tax on finished goods or the output. This basically results in excess accumulation of credit which may not go unutilized.

Impact on demand
Agarwal said the 7 per cent tax increase is too much, especially in light of current inflationary pressures.

Already there is a significant amount of inflation happening. There has been a 10-12 per cent price increase on the MRP of the finished goods in the last nine months on cotton yarn prices going up by 50-60 per cent. We have never taken a price increase (of this extent). It’s the first year in our existence, that we have had to take so much of price increase, and two times in this year alone. Now in January, we will have to take the third price increase…Customer will be saddled with 7 per cent extra burden (V-Mart CFO Anand Agarwal).

The CFO said demand will be severely hit in the low-income segment. He feared that formalization of the economy will be dented big time and cases of tax evasion may see an increase.

“90 per cent retail is still in the unorganised sector. By bringing in GST at a low rate, the government was giving a clear signal to the small unorganised retailers to join the mainstream. Now if the tax rate becomes high, it gives them an incentive to revert to the cash economy and evade taxes,” Agarwal said.

Earlier Raymond Group CFO Amit Agarwal, in an interview with ETCFO, had raised similar concerns and said Raymond, too, has plans to pass on the full hike. “The sweet spot for most of the mills is around 8-8.5 per cent. But taking it (GST rate) to 12 per cent, the textile industry does not have so much leeway that it can absorb this 4 per cent additional costs,” Agarwal had said.

Source-ET CFO.com

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