Indian Retailers Oppose GST Council’s Proposed Tax Overhaul

New Delhi, December 12, 2024

Indian Sellers Collective, a nationwide trade association representing retailers and sellers, has urged the Finance Minister and the GST Council to reject the Group of Ministers’ (GoM) recommendations for GST rate rationalization. The proposed changes, which include introducing a fifth GST slab of 35% and a pricing-based tax structure, are being criticized as a fundamental shift that could destabilize India’s retail sector.

Concerns Over GST Overhaul

The collective warns that the overhaul could severely disrupt the country’s tax framework, claiming it contradicts Prime Minister Narendra Modi’s promise of a “good and simple tax.” Instead of simplicity, the proposed system is expected to cause compliance nightmares, erode profit margins, and benefit foreign manufacturers, especially Chinese firms dominating the low-cost product market.

“This move will wipe out the gains of the GST regime and inflict lasting damage on India’s traditional retail network,” said Abhay Raj Mishra, Member and National Coordinator of the Indian Sellers Collective.

He explained that a 35% tax on demerit goods, such as tobacco and aerated beverages, would expand the illicit market, forcing many sellers out of the formal economy. A pricing-based tax structure could lead to tax manipulation and significant compliance burdens for small and mid-tier retailers, increasing the risk of litigation.

Impact on Retailers and Economy

The group also highlighted five immediate consequences of the proposed system:

1. Higher Prices for Value-Added Goods: Graded GST rates would make goods with additional features unaffordable for middle-income consumers, limiting access to better-quality products.

2. Expansion of Illicit Markets: High taxes on demerit goods would push consumers toward unsafe and illegal alternatives, empowering smuggling syndicates and undermining small retailers.

3. Compliance Burdens: Multiple slabs and rate-based sub-slabs would create logistical and regulatory challenges for small businesses, pushing many back into the informal economy.

4. Litigation Risks: Frequent changes in tax classification and business models could lead to disputes, encouraging corruption in the tax system.

5. Weakened Retail Ecosystem: Rising costs and a complex tax structure could force small and mid-sized retailers out of business, damaging investor confidence.

Appeal for Simplicity and Fairness

Speaking on the matter, Dhairyashil Patil, National President of the All India Consumer Products Distributors Federation (AICPDF), called on the government to reject the GoM’s recommendations. “The retail community appeals to the Prime Minister, Finance Minister, and GST Council to uphold the principles of simplification and rationalization. This proposal will worsen the struggles of India’s retail sector,” he said.

Patil urged the government to prioritize the welfare of small retailers by introducing a simpler GST framework, reducing rates thoughtfully, and avoiding policies that destabilize the