The Federation of All India Distributors Associations (FAIDA) has raised red flags over the complications stemming from the recent GST rate reductions, cautioning that without urgent clarifications, both consumers and small traders could end up losing out.
In a letter to Finance Minister Nirmala Sitharaman dated September 8, FAIDA outlined the financial and operational challenges faced by its members, who represent nearly five lakh distributors in sectors like FMCG, mobiles, telecom and food & beverages, serving over two crore retailers nationwide.
Stock at Old Tax Rates Stuck in the Supply Chain
FAIDA pointed out that a large chunk of unsold inventory is still stuck at old GST rates. Despite lower tax rates, manufacturers have not revised the printed MRPs on many products.
The association warned that the relief announced by the government may not reach consumers immediately. Even if retailers receive goods at reduced distributor prices, the existence of old stock with older MRPs means consumers could continue paying higher prices for months.
"Even if distributors lower prices, the old MRP printed on products makes it legally doubtful whether the benefit will be passed on to consumers," FAIDA noted.
It further alleged that some companies may exploit the situation with temporary marketing gimmicks like "10% extra" or "20% extra" packs, while continuing to sell at the old MRPs nullifying the consumer benefit of GST cuts.
ITC Blockage Hurting Working Capital
A major concern highlighted by FAIDA is the blockage of Input Tax Credit (ITC). Distributors holding large inventories at old rates have already paid GST on those stocks, locking up their working capital.
For example, a distributor with Rs 1 crore worth of stock has around Rs 13 lakh stuck in ITC, which cannot be recovered quickly. FAIDA warned that this liquidity crunch is pushing many businesses to the brink, especially since refunds are unavailable and operations are tied solely to manufacturer contracts.
Legal and Compliance Risks
The association also expressed concern over the absence of clarity from both manufacturers and policymakers. With no clear mechanism for adjusting MRPs, intermediaries face potential legal risks if they attempt to alter prices by methods like affixing stickers.
Adding to the uncertainty, FAIDA said even leading Chartered Accountants and consultants are offering conflicting interpretations, while media reports remain speculative. Manufacturers, it alleged, have been silent and failed to explain how GST relief will actually reach the consumer.
FAIDA's Demands to the Government
In its submission, FAIDA urged the Finance Ministry to issue clear guidelines ensuring that:
- Distributors and intermediaries are not unfairly burdened.
- They are protected from legal complications related to outdated MRPs.
- The intended consumer benefit from GST reductions is effectively achieved.
With lakhs of distributors and crores of retailers impacted, FAIDA stressed that quick government intervention is essential to prevent distortions in the market and ensure that GST rationalisation delivers on its promise of consumer welfare.
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