GST well-intentioned but in haste, say Chennai traders

CHENNAI: As the GST rate cut comes into effect on September 22, small retailers and FMCG distributors in Chennai say the reform, though well-intentioned, has been rushed through in a way that is hard for them to absorb.

With barely a week’s notice and no clarity on how to handle existing stock, many argue that such drastic mid-year changes create more confusion than relief.

At the shop level, the uncertainty is immediate. “Big brands have stopped supplying us for now, saying new stock will come only after the new rates,” says a provision store owner in West Mambalam.

“But I still have packets with old MRPs printed. I cannot sell at that rate. If I reduce it, I lose money. No one has told us clearly how to handle this.”

For distributors, the problem cuts deeper into their finances. Radhakrishnan, State Secretary of TN Consumer Products Distributor Association Federation TN CPDA) points to the possible blockage of Input Tax Credit (ITC) as the biggest stress.

“We’ve already paid GST at 18% on existing stock. From September 22, it drops to 5%. That difference gets locked in the GST portal. For someone holding Rs 1 crore worth of stock, nearly Rs 13 lakh gets stuck. For small retailers, that’s crushing,” he explains.

Adding pointedly, “If they had introduced it at the start of the financial year, it would have been great. But mid-year, with stock already in the system, it creates a huge cash block for us.”

Large departmental stores echo the worry. “When you carry stock worth Rs 50 lakh or more, even a small percentage change locks up lakhs of rupees in input credit. It shows in the system, but we don’t know when or how to recover it. In the meantime, daily operations get squeezed,” says the owner of a T Nagar outlet.

ITC, the mechanism at the centre of the issue, allows businesses to claim credit for taxes already paid on inputs. But when rates change suddenly, tax already paid on unsold stock cannot be adjusted right away. For traders who work on slim margins, that means frozen capital.

The concern is not limited to Chennai. Earlier this week, a national traders’ body representing five lakh distributors and five crore retailers wrote to Finance Minister Nirmala Sitharaman, warning that without clear guidelines, the benefit of lower GST may remain with manufacturers. The letter also flagged the impracticality of expecting small shopkeepers, most of whom are not GST registered, to re-label or re-invoice hundreds of products overnight.

Adding to that skepticism is the industry’s long history of volume tweaks. “Instead of cutting the printed price, companies may add 5 grams free in a snack pack,” Radhakrishnan notes. “After a few months, they will quietly roll it back. Consumers don’t notice the grams, only the price tag.”