Mar 072017

Impact of GST on Traders

Traders are those taxable person who purchase goods for resale. Here an attempt is made to analyze impact of GST on traders.

Intra state sale of goods and / or services

Like in existing vat acts all sales shall be taxable on its transaction value.

Post sale discounts will also be taxable unless these are allowed in compliance with an existing agreement at the time of sale and other prescribed conditions.

Interstate sale of goods and / or services

With the partial phase out of the CST Act, in respect of those goods which are within the scope of GST, no sale or purchase could take place against Form C. Interstate purchase against Form C presently cost @ 2% of the purchase price and same is not refundable / adjustable. However, after GST same is taxable @ IGST which is equal to CGST and SGST and fully adjustable against sale GST tax. Thus, under GST a person would get credit of the entire amount.

In CST a taxable person could get exemption if he shown Form E –I / II against the sale of goods to another state. Dealer selling the goods has to issue a certificate in prescribed form to the purchasing dealer (Prescribed forms are E1 form if its first sale and E2 form if subsequent sales). Subsequent purchaser has to issue certificate in prescribed form (This is C form) to his seller. Such certificates are to be produced before assessing authorities within prescribed time. The certificates in C, E1 and E2 forms are to be issued on quarterly basis. Such exemption under section 6(2) would be withdrawn and such sales are also taxable at full rate of IGST.

Stock Transfers

In the present regime, in case of stock transfers, the dealers are required to reverse certain percentage of input tax credit. However, no such reversal would be required under the GST.

On the other hand, presently, stock transfers does not attract any tax since these are transferred against Form F. Under GST, however, the person shall pay tax on such transfer on the transaction value.

Impact on business investment

The dealers will have to pay full IGST on all interstate transaction at the time of sale and all stock transfers. Hence, traders will require an additional working capital for investment in tax.

Input tax credit

Traders will also get input tax credit (ITC) for taxes paid on input services. To this extent traders will be benefited which they can pass it on to customer and thus, making their goods cheaper.

List of non creditable goods will also have major impact on the dealers. Shorter the list higher would be the gain.

ITC would not be available on free supplies under the GST even if these are used for furtherance of business. [Section 17(4) (g)].

ITC on capital goods: furniture, fixtures and AC

Definition of capital goods have undergone a dramatic change in the revised Model GST law. Now, capital goods, defined in section 2(19) of the revised model GST, means goods, the value of which is capitalised in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business. Therefore, they would get the tax credit on furniture, AC etc used for business.

Presently, if a trader wants to pass on the excise duty to the purchaser, he needs dealer registrations in central excise. No such separate registration is required under GST. He can pass on the GST credit to the purchaser freely.

Dual control

Since the dealer will be covered under CGST and SGST, they might be under control of the union government as well as the state government. However, the government is trying its best to avoid dual control.