Will Furniture Artisans Now Compete With Retailers Under GST? Manufacturers of handcrafted furniture are likely to lose their earlier exemption benefits and get taxed at the same rate as factory-made furniture

By Mahesh M

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.


For quite a while now, multiple indirect tax legislations have been in vogue, which led to significant compliance and administrative costs, classification and valuation disputes and more often than not impaired the ease of doing business.

Input Tax Credit

The above issues appear to be addressed to a large extent with the introduction of Goods and Services Tax (GST). As one can observe, it tries to mitigate cascading or double taxation issues, eliminate state boundaries thus bring down the overall cost of production of goods.
With regards to retail, space rentals are one of the main costs of retail stores and it attracts a service tax of 15%. Currently, the retailers cannot set off these costs like the other industries. Now, they will be able to probably use this as Input Tax Credit.

On another completely different angle, Selection of Manufacturing Location, Warehousing location and its size, vendor partner, which were hitherto largely assessed considering levy of State Taxes more minutely while compared to other aspects such as operational efficiencies or the like, a relook is prompted. Thanks to GST.

Challenge For Organized Retailers to Compete With Unorganized Ones

If one were to look at the furniture market, it is quite fragmented and with organized retail accounting for 10% of the total business, it is going to be a challenge for such retailers to compete with the unorganized retailers in the short run. With a tax levy of 28%, the category is slated for a step up from existing tax structures.

If there is a conscious effort to migrate the unorganized players to the organized sector, which is hopefully a doable goal in the medium run, then we can look forward to some interesting times ahead.

Manufacturers Of Handcrafted Furniture Likely to Lose Exemption Benefits

While this is true for most retailers, manufacturers, especially of handcrafted furniture, are likely to lose their earlier exemption benefits and get taxed at the same rate as factory-made furniture. What this could translate into as outcomes when we look at artisans or exports is anybody's guess.

Increase in Working Capital

On the flip side, possibilities are likely for an increase in working capital, as stock transfers are deemed to be supplies and are subject to GST. Realization of this GST would only occur when the final supply is concluded. Therefore, companies would maybe like to rethink their supply chain management strategies to minimize this impact on their cash flows.Free samples may be subject to GST, volume-based discounts received at the year end after supply will not be entitled to GST benefits.

Separating the Wheat From the Chaff

However, amongst organized players and the semi-organized ones, we can look forward to operational, especially supply-chain efficiencies, playing a much more pivotal role and helping separate the wheat from the chaff. I am confident that transparency and a level-playing field will help mature this category sooner than later.

Retailers to Revise Prices

From a consumer perspective, the jury is still out. Retailers and furniture players are expediting the process of revisiting and maybe revising prices and we will be closely watching their responses and reactions in the next few months.

All these aspects are quite important from any organized furniture retailer or manufacturer. Given that this category is going through a steady-paced transformation into the organized sector, it will be worthwhile for the stakeholders to quickly and smoothly adapt them, after all, the entire value-chain needs to optimize itself so that the end-customer can benefit and overall product absorption will also increase in the market.

Mahesh M

CEO, Ishanya

Related Topics

Business News

Airbnb Renter Discovers Hidden Door, Says Police Confirm There's a Secret Unit Upstairs With 'Surveillance': 'A Terrifying Experience'

One bride-to-be was in for a not-so-welcome surprise when she discovered a secret door in her Airbnb rental.

Business Ideas

55 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Employee Experience & Recruiting

How Job Seekers Can Craft the Ideal Application — and How Employers Can Create a Job Listing That Attracts the Right Candidates

Are you a small business looking for a new hire, or a job seeker who's not getting any callbacks? Here are some tips to get you through the door as a candidate, and get the right applicants through your door as a company looking to hire.

News and Trends

Ex-Polygon Co-founder's Web3 Startup Avail Bags USD 27 million in a Seed Round

The capital influx will help to develop the Avail trinity. Avail Trinity is a three phase roadmap to enable a secure, scalable and seamlessly interconnected web3 experience for end users of any ecosystem. The phases are Avail DA, Avail Nexus, and Avail Fusion Security

Science & Technology

The 'Mother of All Breaches' Just Happened — Here's the Security Implications for Businesses

If your business exists online, chances are some percent of your customers' data got leaked in what cybersecurity specialists boldly labeled as the "mother of all breaches" (MOAB).