New 35% GST Slab: Impact on Indian Retailers and Compliance
The introduction of a 35% GST slab and pricing-based tax structure is raising alarm bells among Indian retailers. Trade associations are urging the GST Council and Finance Ministry to reconsider these proposals, arguing that such changes would complicate the GST framework and harm retail businesses. The proposed changes could disrupt the retail ecosystem, increase compliance burdens, and inadvertently benefit illicit markets.
Why the 35% GST Slab is Problematic
1. Increased Costs for Middle-Income Buyers
A pricing-based GST rate will make goods with incremental features more expensive. Middle-income consumers may lose access to such products, widening the economic disparity.
2. Rise of Illicit Markets for Demerit Goods
A 35% GST slab on demerit goods like tobacco and aerated drinks may push consumers toward illicit or counterfeit products. Case law such as Kumar Traders v. State of UP (2023) highlights how high tax rates often lead to smuggling and black-market growth.
3. Compliance Nightmares for Small Retailers
Multiple slabs and pricing-based structures will make GST compliance overly complex. This could lead to unintended non-compliance and increased litigation risks. The case of P. K. Enterprises v. GST Council (2022) demonstrated how complicated tax regimes can burden small businesses.
4. Corruption and Misclassification
Tax authorities may be tempted to reclassify goods to higher slabs to boost revenue, resulting in corruption and frequent litigation. This undermines the promise of GST as a “good and simple tax.”
5. Threat to Small and Mid-Tier Retailers
Frequent changes in GST slabs can force small businesses to alter their business models repeatedly. Compliance costs will erode their thin profit margins, pushing them out of the formal economy.
Retailer Associations’ Concerns
The Indian Sellers Collective and All India Consumer Products Distributors Federation (AICPDF) have strongly opposed the GoM’s recommendations:
- Abhay Raj Mishra of the Indian Sellers Collective warned that the changes would wipe out the benefits of GST, driving retailers out of business.
- Dhairyashil Patil, President of AICPDF, emphasized how small retailers are the backbone of the economy and would struggle to survive increased compliance costs.
✅ The Way Forward
To support Indian retailers and uphold the spirit of a “good and simple tax,” the GST Council should consider:
- Simplified GST slabs with minimal tiers.
- Balanced tax rates to avoid pushing consumers toward illicit products.
- Retailer-friendly compliance measures to prevent litigation overload.
Conclusion:
The proposed 35% GST slab could fundamentally alter India’s retail landscape. Simplification, not complication, should be the GST Council’s guiding principle to protect small retailers and ensure a fair market.