As we approach the start of festive season, consumers are often spoilt for choice across product categories as retail shops, branded stores and malls try to boost sales through hefty discounts and freebies.
But the launch of the new indirect tax regime, the goods and services tax (GST), last month has been prompting consumer goods companies to tweak their discount strategy while gift vouchers, freebies and promotional offers may not be directly offered to woo consumers.
This is because under the new tax regime, freebies or gifts offered by retail shops or companies will attract GST.
Also, a manufacturer or retailer can avail of input tax credit only on product sold which carries as economic value and not on items with zero value.
In fact, any item sold at a discount or that carry 'zero' price tag will not allow a manufacturer to claim for input tax credit, and would instead have to bear tax on goods sold.
"If we do not get input tax credit, we will not do it (give freebies), economics of any offer has to work," Business Standard report said quoting Nikhil, Chaturvedi, managing director at fashion chain Provogue.
Brands like Vero Moda, AND, and ONLY have decided to skip freebies and gift vouchers, and instead are offering straight discounts to customers to avoid paying tax for items sold at discounts, said the BS report.
Not just fashion retailers, even makers of packaged food products are also doing away with buy-one get-one-free offers.
"We are doing away with buy-one get-one-free offers and are switching to upfront discounting," said The Economic Times report said quoting Mayank Shah, marketing head at biscuit maker Parle Products. "This is causing disruption but it's what is required under the goods and services tax," said Shah.
Jubilant FoodWorks, which operates Domino's Pizza and Yum Restaurants-owned Pizza Hut are also discontinuing buy-one-get-one free schemes, the ET report said.
Further, packaged goods firms such as Dabur and Marico are also looking to tweak their promotional pogrammes and would include more combo packs and price-offs, it said.
Updated Date: Aug 03, 2017 12:59 PM