GST not the trigger for rise in retail stocks: Noel Tata

Tata feels that the recent increase in valuations has anything to do with GST

The goods and services tax (GST) is expected to change the way people do business. Noel N Tata, the chairman of Tata-owned Trent, tells Raghavendra Kamath that he expects retailers to benefit from simplification of their operations because of the homogeneity of rates across states and categories as well as additional tax set-offs under the GST. Edited excerpts:

How would GST roll-out benefit retail companies?

The biggest benefit of the July 1 roll-out of the GST has been the removal of a significant uncertainty that has been on the horizon for Indian businesses in terms of the indirect tax regime for several years. The government’s willingness to listen and engage with various stakeholders and the speed with which they have addressed many of the principal concerns raised by businesses are very commendable. Over the past couple of months, a lot of 'the devil is in the detail' has been resolved. A key case in point for the retail industry, for instance, is the treatment of intra-entity stock movements across state boundaries. It is also evident that the government has largely delivered on its promise of maintaining neutrality in tax revenues across categories, and hence I don’t expect prices to increase except in a few cases.

What are the challenges that organised retail would face under the GST?

Some of the challenges include the increase in tax registrations for businesses with a national footprint, transition-related complexities and in the case of services, the devolution of taxation to states vis-a-vis a single registration in the current regime. Having said that, I expect retailers will also benefit from the simplification of their operations thanks to the homogeneity of rates across states and categories, and the additional set-offs which they may be eligible to realise under the GST.

Retail companies' valuations have soared up in the past six months. Is it linked to GST roll-out?

I don’t think the recent increase in valuations has anything to do with the GST – perhaps it has more to do with the growth rates registered by leading retailers in recent years and there being only a limited number of listed retailers for investors who would like to participate in this sector. There is also a growing recognition of the significant potential of this sector over the long term.  

Is the GST going to favour organised retail over mom-and-pop stores?

As you know, the GST is completely size-agnostic. In addition, the applicability of zero or five per cent rate on essentials, items of mass consumption which are predominantly sold by our ‘kirana’ stores, will significantly reduce the tax payable by them. For those who are still uncomfortable, the government has also increased the compounding limit to Rs 75 lakh, simplifying the entire onboarding process. 

What are the savings that will come to retail operations with the GST making logistics for goods movement easier?

Seamless transfer of goods across state borders from a tax perspective should result in the creation of larger regional warehouses replacing state-specific distribution centers driven by tax considerations. I also hope that once the GST regime is streamlined, businesses would be able to take advantage of fewer documentation formalities with most of the filings moving online.

How much GST-compliant has Trent become and what kind of savings will it make after GST implementation?

We are confident that Trent will be fully prepared for the July 1 roll-out and our teams are working with this objective in mind. We estimate that on the basis of the rate structure announced, the overall impact will be largely neutral, and over time and with some experience we will be in a better position to ascertain the exact impact.