Under the Goods and Services Tax (GST) scheme, many items have moved into different tax categories. As a result, you may want to change the prices of some of your wares. It’s important to keep numerous elements in mind as you make these decisions.
Understanding the Maximum Retail Price
Legally, all packaged goods must be marked with their maximum retail price, which is the maximum amount you can charge for these goods, including tax. For instance, let’s say the maximum retail price on a packaged item is ₹1,180 and it’s in the 18% GST category. In this case, you can charge a maximum base price of ₹1,000. That makes the GST ₹180, bringing the total to ₹1,180. Of course, you can charge less than those amounts if you like, but you can’t legally exceed the maximum retail price.
Maintaining Your Profit Margin
When pricing products and services, you need to maintain your profit margin. If you sell any items that have experienced an increase in GST rates, you may need to adjust accordingly. To explain, imagine you sell an item that used to be taxed at 5% but has increased to 18%. In this case, you may want to reprice the item so that the tax increase doesn’t cut into your profits.
Passing on Tax Cuts
In most cases, the GST system actually lowers the tax on many goods and services. If you sell products with lower tax rates, you may be obligated to pass those savings on to your customers. This situation occurs frequently in the restaurant industry. Both restaurants with and without air conditioning now charge 5% GST on their sales, which is a significant decrease from the usual 18% rate. But if these restaurants don’t pass on the savings to their customers, they may receive complaints from the National Anti-profiteering Authority. To protect your reputation and avoid potential complaints, you may want to check with a chartered accountant or tax consultant to see if you’re required to pass on any savings in your situation.
Even if you’re not legally obligated to lower your prices, you may want to pass on other savings that you receive from the new tax system to your clients. For instance, if your trucks are no longer wasting hours at checkpoints, you save money that you may want to pass onto your clients. Similarly, if the shorter GST tax form saves you time, you may be able to extend savings to your clients as well.
Checking Out the Competition
Regardless of the GST rules, it’s a good idea to keep tabs on the competition when you’re pricing goods and services. Take time to see what similar businesses are charging for goods and services in your area. Compare your prices to theirs, and make sure you’re competitive. If your business is primarily online, investigate what other e-commerce or web-based companies are charging. It’s not necessarily the case that you’ll lower prices as a result of this comparison. In some cases, you may want to raise your prices but provide more value, higher quality or better services.
GST laws can be complicated, but ultimately, they are designed to simplify reporting requirements and reduce hassles while moving goods from state to state. To get help tracking your sales and staying on top of your GST rates, consider looking into a solution such as QuickBooks.