With the implementation of the Goods and Service Tax from 1st July 2017, there will be a substantial amount of changes in the tax rate from the current VAT rate being charged.
- The final goods produced by the manufacturer of wooden furniture will be taxed at the rate of 12% under GST instead of the current average VAT rate of 12.5%.
- Plywood is used mainly in the manufacture of most of the wooden furniture articles. There has been a significant increase in the rate of plywood from the current average VAT rate of 5-6% to 28% under GST. Due to the increase in the tax rate on plywood, there are significant chances of increase in the cost of wooden furniture.
- Iron or steel furniture are also expected to get expensive under GST. Current average VAT rate applicable on iron or steel furniture is 12.5% whereas under GST except for wooden furniture, any other articles of furniture would be charged tax at the rate of 28%.
It is clear that the tax rate under GST on wood, furniture, iron or steel is higher than the current applicable VAT rates, therefore final produce for the customer will also increase .
For example, if currently a final product from a furniture maker is priced at INR 1,00,000 , the same product after GST application will be near about INR 1,20,000 .
Mr. Kabir Bhasin , CEO , East Furntiure , who has been in this business for over 20 years, comments
“ With the implementation of new tax slab, the cost of raw material , i.e plywood, the cost of manufacturing ( machinery used) , the cost of supplies , and cost of retail spacing, will all add up to increase in the final MRP of the product , furthermore, online sales of furniture will be affected due to same, as giving off heavy discounts ,which is a key method that companies use to grab customers ,will be harder post GST” .
East furniture has made the month of June a “shop all you can” month , with discounts upto 70% on its existing stock to clear the old stock before 30th June, a maintaining two separate inventories for same product, at different tax slabs will become an issue.
Also having offers such as on purchase of 25,000 INR and above get a free goodie bag worth Rs.5000/- , to attract more customer flow before the 30th of June.
Like East , various other FMCG brands , Automobile brands and IT sectors have been introducing a Pre GST sale to clear up stocks and attract footfall .