Price based GST will boost counterfeit products, RAI writes to govt

The Retailers Association of India (RAI) has appealed to Finance Minister Nirmala Sitharaman to reconsider the implementation of price-based Goods and Services Tax (GST) rates on retail products. A group of ministers (GoM), appointed by the GST Council to review rate rationalization, has proposed changes to the tax rates on various goods. These changes include increasing the GST rate for shoes and watches priced above a certain threshold from 18% to 28%.

RAI, the leading organization representing Indian retailers, comprises approximately 13,667 member establishments, including both large and small retailers, collectively operating around 600,000 retail stores across the country. The association's letter to the Finance Minister, obtained by Storyboard18, raises concerns about the GoM’s recommendations.

In mid-October, the GoM suggested shifting shoes and apparel priced above ₹15,000, and wristwatches priced above ₹25,000, to the highest GST slab of 28%. This introduces a price-based GST rate, which RAI argues would significantly impact the retail industry.

The letter emphasizes that increasing GST rates by 10% will lead to a proportional rise in the prices of premium products, potentially reducing their sales volume. Additionally, many of these products face global competition.

Kumar Rajagopalan, CEO of RAI spoke to Storyboard18 during Ekam hosted by RAI, “Our concern is whether a product like a suit priced at ₹15,000 should be classified as a luxury item. People often wear such attire for weddings or special occasions. Imposing a higher GST on these products may encourage consumers to seek alternative, possibly illegal, avenues to acquire them.”

He further noted, “The government’s intent to increase revenue through higher GST rates may not materialize. Many consumers will opt to buy these products from overseas, or worse, these items could enter India unofficially. We have observed that higher taxes often result in an influx of counterfeit products, undermining legitimate markets.”

The letter warns that this policy change could hinder the growth potential of the retail sector, resulting in revenue losses for retailers and reduced GST collections for the government. Moreover, the proposal could jeopardize the government’s Make in India initiative by making Indian products less competitive internationally.

In the medium term, higher prices in India could render these products uncompetitive in global markets, reverting growth rates to pre-2018 levels of around 5-6% annually. Consequently, the total revenue collection may decline under the higher GST rate compared to the current structure.

Rajagopalan cautioned, “If the government implements price-based GST on premium products, sales will decline due to higher costs, and counterfeit and spurious goods will gain a stronger foothold in the Indian market.”

He concluded, “This move contradicts the government’s aim to improve the ease of doing business. Multiple GST rates for products with the same GSTN codes create unnecessary complexity. We urge the government to reconsider this decision and maintain the current GST rates.”

With India riding on the wave of premiumization, and being fastest growing economy in the world, premium categories are yet to showcase its true growth potential. Swiss watches exports to India is just over 1% of the world and India ranks 22nd for Swiss watch export. Retailers have cautioned the government to consider speaking to stakeholders before taking a concrete stand on the issue.