Frantic rollout knocks wind out of Chennai businessmen

Entrepreneurs in the city are burning the midnight oil – and instead of focusing on growth strategies, they are getting their hands dirty with data entry, among other chores. Re-classifying goods to fit the new tax slabs seems to be the biggest pain point for majority of SMEs in the city.

Dinesh Kumar, the proprietor of Browntree, a dry fruit and nuts retailer tells us, “The GST system is complicated. We deal with 4,000 to 5,000 HSN codes (Harmonised System of Nomenclature) and it is not at all easy to categorise the goods under the present GST method.” For instance, pre-GST cashew drew a component of 5 per cent tax but it is now charged 12 per cent tax if it is salted or spicy. Cocoa is another example.

“For cocoa-based products, a different tax rate is levied for items containing varying percentages of cocoa content, which is confusing to the vendor. Dates, which were in the 5 per cent bracket in the pre-GST era, are now charged at 12 per cent for the dry variety while fresh ones are exempted.” The impact of GST on profit margins is also substantial. The owner of the chain, which has 20 outlets in the city (including a new one operational at Velachery) and one each in Bengaluru and Ahmedabad, anticipates its margins to dip from 20 per cent to around 16 per cent.

Vishnu Shankar, Director of Adyar Ananda Bhavan, echoes a similar sentiment. Stating that the GST roll-out could have taken place in a phased manner, he says “There is a huge swing and customers have been hit badly. The policy lacks clarity as the procedure of fixing HSN codes is riddled with confusion. Though only four or five codes are relevant to my business operations, we must scan through 40,000 plus codes. Also, what kind of treatment will be given for a restaurant chain which has one AC floor and another without AC? How does one charge for a bottle of aerated drink, given that consuming it in an AC environment will mean a different tax charge compared to drinking it in a non-AC room?” Recalling the demonetisation experience, Shankar says though it was a temporary blip with the cash transactions increasingly replaced by the digital ones, the online surcharge went to MNCs as the domestic payment gateways were not geared up on the infrastructure front.

“Likewise, in the case of GST, we do not find any helplines and the business practices vary from state to state. TN, by and large, has small and medium restaurant players who are organised and tax-compliant,” he adds.

A few businessmen maintained that sales tax authorities themselves are not aware of the procedures in many cases. A ‘wait and watch’ response is what most government servants would offer when approached for clarity on these issues, a trader remarked.

Sumanth Raman, an analyst based out the city, says, “In the short term, we can expect chaos owing to system glitches, absence of clarity on processes and the tax slabs. The reluctance of small traders to change and be part of a formal tax system will make their effects felt.”