With the introduction of GST in the country it was hoped that all will be brought under the tax net and there will be level playing field between country’s organised and unorganised sector. The new tax regime is more than one year old and we are seeing just the opposite of what we hoped for.
Unorganised sector is taking full advantage of the weak surveillance prevailing post introduction of GST in the country. It is found that since not all buyers ask for bills/invoices, a few distributors/dealers have resorted to bill selling to builders, who gain not only on input tax credits but also on higher expenses/lower tax outgo. In addition, pricing differential which is more than 10% and higher credit days (unorganised players offer more than 3months credit while organised players offer just 1-2 months credit) forces distributors/ dealers to direct buyers towards the unorganized sector.
For example, post GST, the pricing differential between organized and unorganized has narrowed, but still remains wide (15%+) with elongated credit days. In plywood, case of wafer thin margins and lower credit cycles force distributors to switch to unbranded labels.
As against the general belief, after the introduction of GST, the unorganized sector (tiles, wood) benefited. With the suspension of check posts, there were reports of undocumented invoices for transport of goods, with no clear way to reconcile the invoices. Reduced tax compliance further aided the unorganized sector with options on pricing and liberal credit offers.
However, after the introduction of the e-way bill, players in the organised sector believe that things will change for the better. But the trade experts believe that change will happen gradually and not overnight.