Gst impacts on padini

Impact on increasing the prices of products are one of the main costs of retailing industry after implementing the Goods and Services Tax (GST). Currently, Padini store is not affected from Sales tax due to the raw materials and machinery used in their manufacturers are eligible for exemption from the tax (Sales tax in Malaysia, 2013). By implementing GST, This make they feel is an additional cost of operating in this industry which is unfair to them. Thus, Padini store would be negatively impacted.

With GST, the products that consumers buy from Padini store go through a number of stages till they reach the shelves and at the every stage tax has to be paid thereby increasing the price of the products (team, 2013). For further understanding, before implementing the GST system, manufacturer produce a T-shirt with cost of RM50 and sell to the wholesaler with the price of RM50 then wholesaler sell the T-shirt with a price of RM60 to the Padini store in order to get profit of RM10. Then, Padini retailer sells the T-shirt with a price of RM80 with RM20 taken as a profit to the end users. This is what happens currently in Malaysia, specifically in Padini Store.

However, if the GST is implemented by Padini store, this would actually increases the price of the product as well as the tax paid. Let start off with a wholesaler, who buys the required raw material which is T-shirt from a T-shirt manufacturer, say at RM50. Under the GST system, the wholesaler ends up paying RM53 to the manufacturer (RM50 + 6% in GST). The manufacturer then pays the GST of RM5 it has collected to the government. The wholesaler, charges the retailer RM63 for each T-shirt. Under the GST system, the retailer ends up paying RM63.60 to the wholesaler (RM63 + 6% in GST). GST payment by the wholesaler to the government is RM0.60, after deducting the RM3 in GST it had paid earlier to the manufacturer.

The Padini retailer, upon receiving T-shirt from wholesaler, now sells it to the consumer at RM83. Under the GST system, the consumer ends up paying RM84.80 to the Padini retailer (RM83 + 6% in GST). GST payment by the retailer to the government is RM1.20, after deducting the RM0.60 in GST it had paid earlier to the wholesaler. Obviously, there is a difference in price before and after implementing the GST system. The price of a T-shirt which should be only RM80 end up with a price of RM84.80 by added the GST. This prove that the GST system giving the negative impact to the Padini store as they needed to increase the price as well as the cost without effecting the level of profit of their products.

Thus, Padini store will pass on the burden of the tax incidence to their consumers thereby increasing the prices of goods sold. Increasing the prices will be an unwelcome new phenomenon for them. With GST coming into effect, customers have to pay more than before which causes purchasing power reduced (The Background Of Padini Marketing Essay, 2013).