It has been nearly a month since the government’s latest Goods and Services Tax (GST) rate cuts came into effect, but chances are some packaged goods may still be sold at old prices in small retail stores.
While large companies have advertised lower prices and announced full pass-through of the tax cuts, officials monitoring the implementation say small, unorganized retailers, many of them outside the GST system, remain a weak link in ensuring consumers actually see the benefit.
Officials tracking the price reductions following the GST reforms effective 22 September have observed instances of retailers selling their old inventory at the printed prices rather than at the reduced rates, said two persons familiar with the development.
Retailers are required to sell at revised prices that reflect the tax relief even if their existing stock carries pre-tax cut maximum retail prices (MRPs). They have the option to affix new price stickers.
However, the government cannot take legal action against unorganized retailers who fail to comply, given that they are not registered under GST. Only merchants with annual sales above ₹40 lakh are required to register under the tax system, and the threshold is ₹20 lakh for those selling across state borders.
Policymakers expect compliance to improve as existing inventory gets sold.
“Once their existing stock carrying prices prior to the GST rate cut is exhausted, they will also be selling at reduced prices. We expect that by December, the tax rate cut benefit will have fully been passed on to consumers. We cannot proceed against retail stores who do not have GST registration as they are not part of the GST system,” said one of the persons quoted above.
The government plans to monitor prices for at least six months and has been highlighting the extent of tax benefits across products and services at events nationwide.
The Central Board of Indirect Taxes and Customs (CBIC), state GST authorities and the political leadership are closely monitoring the pass through of GST rate cuts to retail prices. Officials are giving monthly reports to CBIC on price movements of goods and services.
“Large companies have publicised their price cuts and have passed on the benefits to consumers. The only concern is with unorganised retailers. Once the reduced prices are implemented across the supply chain, market forces will ensure they stay at that level. If anyone raises prices, consumers will buy less or switch elsewhere. So, market dynamics will naturally keep businesses price-competitive, even though there is no legally enforceable period for maintaining the lowered prices after a GST rate cut,” said the person, requesting anonymity.
After the six-month monitoring period, if businesses raise prices due to external factors such as higher input costs, the government cannot take any legal action, as companies retain pricing freedom in a market economy.
“Ensuring that companies lowered prices commensurate to the tax cuts and have maintained it for six months means the government’s objective of tax reduction has been accomplished,” said the person.
Mint reported on Saturday that finance minister Nirmala Sitharaman said that since 22 September, when GST reforms were rolled out, the government has been closely monitoring price trends of 54 daily-use items to ensure they are available at lower prices for consumers. “Not in one case, has the benefit of tax reduction not been passed on to consumers,” Sitharaman said.
India has around 73 million unincorporated enterprises, but only 15 million businesses are registered under GST, highlighting that a large section of the economy remains informal. The number of unincorporated enterprises engaged in trading is estimated to exceed the total number of GST-registered businesses in the country.
Queries emailed to the finance ministry on Thursday and to Hindustan Unilever Ltd, India’s largest fast-moving consumer goods company, remained unanswered.
The Confederation of All India Traders (Cait), representing 90 million traders and small businesses across the country, said the trade body fully supports the objective of ensuring that the benefit of GST rate reductions announced by the government from 22 September is effectively passed on to consumers.
“Cait has already initiated an extensive awareness drive across the country to educate traders about the revised GST rates and the importance of adjusting retail prices accordingly,” it said.
Cait added that it has issued advisories to all its state and local trade associations urging traders to re-label or display revised prices wherever feasible.
A big chunk of traders are unorganized and small vendors may take time to align with the new pricing framework, the association said, adding it is working with the government and GST authorities to bring them into the formal fold.
“We are confident that as existing inventories are exhausted, full pass-through of GST benefits to consumers will take place. Cait remains committed to facilitating a smooth transition at the retail level and ensuring that both traders and consumers benefit equitably from the government’s reformative measures,” Cait added.
