GST: Crunch now, hike later

Hyderabad: The rollout of the Goods and Services Tax (GST) from July 1 is expected to result in a price rise for the first one or two months due to shortages of goods in the market.

Manufacturers are cutting down production ahead of the GST rollout due to lack of clarity on tax rates. They want to ensure that all old stocks are cleared prior to the introduction of the new tax regime.

Retailers too said they are stocking goods sufficient to meet demand for just one week against two weeks earlier.

Officials in the commercial taxes department say that the shortage is already being felt in retail medical stores for the last two or three days and is gradually extending to FMCG, textile and other sectors.

Official sources in the commercial taxes department said they have received complaints of shortage of medicines in retail stores and inquiries revealed that manufacturers have brought down production ahead of the GST rollout.

Retailers are not willing to stock the quantum of medicines that they stocked earlier, fearing that they may suffer losses in case of changes in GST tax rates over existing VAT rates as they cannot pass on the burden to consumers since MRP rates are fixed on old stocks.

Officials believe that the period of uncertainty will last for the first one or two months and thereafter prices will stabilise automatically.

“The major concern for manufacturers and retailers is mismatch between tax payouts and tax refunds once GST kicks in. Due to this fear, they have cut down production to maintain a minimum inventory. The retailers too shy away from stocking goods like earlier and return stocks to companies,” said a source in the department.