How do you assess the impact of GST on your industry? What aspects of your own business are likely to be affected?
In the long-term, there will be a lot of benefits of GST. Firstly, the share of the unorganised sector in the domestic lighting market is 30-35%. These players are not tax compliant and run their operations unethically. This allows them to enjoy cost advantage over the organised players. Once GST kicks in, it is expected that the market share of non-tax compliant players will fall and eventually tax-compliant businesses will derive benefit.
Secondly, the outgoing tax system compelled companies to maintain a warehouse in every state. We have 29 warehouses, one in each state, and that makes us incur costs in infrastructure and inventory. Going forward, GST will enable optimising these costs as India becomes one market. We may be able to bring down our warehouse count to half!
In our assessment, there will be short-term negative impact too. States such as Uttar Pradesh levy zero percent VAT on LED lighting, as they want to push energy-efficiency. Most states have a 5% or lower VAT levy for this product category. But the GST rate for the product has now been fixed at 12%. The new tax regime also levies 28% tax for conventional lighting products such as GLS, CFL, and FTL, as opposed to the prevailing 12-13% in most states. These tax hikes are likely to increase the prices of LED-based as well conventional lighting products.
We are also waiting for clarity from the government regarding GST on special area exemption on excise duty on manufacturing. Some states such as Uttarakhand offer these exemptions for manufacturing lighting products. We don’t know if lighting manufacturers will continue to receive the exemptions.
Post-GST, will it be a win for the organised sector? Do you expect an increased market share for Philips Lighting India?
The success of GST will depend on how effectively the government is able to enforce the new tax system. Successful implementation could indeed lead to a vacuum that would be caused by the absence of non-compliant players in the market, which could be filled up by all the organised players. At present, it is a bit difficult to assess our expanded market share post-GST.
How you are preparing for GST? How are you restructuring your supply chain to continue delivering products and services seamlessly and cost-efficiently to channel partners and end-consumers?
Firstly, our IT setup is ready to enable us to migrate to the new tax regime. Secondly, till now we had to maintain a warehouse in Ghaziabad in Uttar Pradesh, Gurugram in Haryana, and in Delhi. GST will now enable us to have only one warehouse in Delhi-NCR, covering Delhi, Uttar Pradesh, Haryana, Punjab and parts of Rajasthan, as India becomes a single market. Our revised supply chain blueprint is ready, to enable us to consolidate our warehousing. This process will take 6-9 months. GST rollout means that transportation and travel time alone will be the deciding factors with respect to warehouses, as opposed to now when states’ tax system prescribes their location. Thirdly, we will share our new price list with all trade partners by early June.
How are you supporting your channel partners in becoming GST-compliant?
Our channel partners are big organisations. To help them be GST-ready, we have organised webinars and educational sessions over the last six months. We have tapped into our ‘Philips Lighting Dealers’ Association’ (PLDA) that comprises dealers and distributors, besides reaching out to our 800 channel partners across India. However, we feel that the challenge lies in penetrating the multi-brand retailers and kirana shops, many of whom don’t posses VAT registration and have low understanding of GST.
Do you think GST will enhance customer experience?
I think it will. Unorganised players are non-tax compliant, and they are non-quality compliant too. They sell products that do not adhere to the mandatory RoHS (Restriction of Hazardous Substances) certification, risking the lives and properties of consumers. As GST is expected to reign in these players, consumers will be able to get their hands on more certified products. This will make a huge difference to their lives. We also feel that as our supply chain will get optimised and prices of our products may come down, benefiting consumers in the long run.