The new GST regime suggests that anything tagged as free shall have to be taxed under the new indirect taxation norms and forego input credit at the same time. The GST print dictates that companies giving away anything for 'free' or 'buy one get one free' promotional offers shall attract additional tax burden.
To strengthen their sales volume, several food services as well as packaged products offer freebies, nonetheless with the implementation of GST on a nationwide basis from July 1, such offers are gradually phasing out from the market.
"Given some of the tax implications under GST, our team is evaluating the optimal path forward and we will likely become more selective when giving products as promotional items," said Godrej Consumer Products' Managing Director, Vivek Gambhir.
Another company Parle Products told one of the leading business dailies that the company shall now on change its strategy to offer more direct discounts to consumers as against providing freebies. The proposed change is the need of the hour amid GST roll-out.
The trend to offer freebies in the consumer goods market is on the back of not-so-good growth witnessed by the industry in the last several years. Now on companies will have to adopt other strategies that include product giveaways and discounts.
Other food service companies Dominos Pizza and Pizza Hit have also taken such offers off the shelves. The pharmaceutical companies shall also come into this fold i.e would attract GST implication if they give away anything for free.
One of the tax experts noted "As per the GST Act, every time something is sold free of cost, its 'transactional value' must be found out and GST paid on it". Furthermore, clarity in this respect is sought from the government, the tax experts added.