Impact of GST on FMCG Companies in India

INTRODUCTION

Fast-moving consumer goods are our key sponsors in direct and indirect taxes. If we look at the contribution of GDP, FMCG is an important player. The Goods and Services Tax that has taken over most of the indirect taxes in the country will have a significant impact on the fast-moving consumer goods sector. The Indian FMCG sector is the fourth-largest economy in the economy with a total market capitalization of more than $ 13.1 billion. Fast Moving Consumer Goods (FMCG) assets are known as integrated consumer goods. Items in this category include all consumables (excluding groceries/pulses) that people purchase on regular basis. FMCG is also one of the fastest-growing sectors in the Indian economy.

As per the previous tax regime, FMCG pays many different types of taxes such as VAT, Service Tax, Excise Duty, and Central Sales Tax. But, as per the GST law, it will include all of the above taxes under one single tax point in form of GST. The tax rate of the FMCG industry includes all taxes approximately 22-24 % and in GST the tax rate is 18-20 %. It can be accepted by all major players in the FMCG industry. There are no input fees available for certain taxes such as CST, CVD, and SAD under the tax regime. While under GST, there is credit input available for all GST payments made in the business.

The main purpose of this paper is to know how GST has affected companies in the FMCG industry. In this article we will talk about:

• What do you mean by FMCG?

• The impact of GST on the FMCG sector

• Conclusion

What do you mean by FMCG?

Fast-moving Consumer Goods (FMCG), also known as consumer packages goods (CPGs), are products that are sold faster and at a lower price. Examples include non-perishable household items such as mixed foods, beverages, toiletries, sweets, cosmetics, over-the-counter drugs, dry clothes, and other consumables.

Fast-moving consumer goods have a high inventory advantage and are compared to specialty items with low sales and high shipping prices. Many retailers carry only FMCGs, especially hypermarkets, large box stores, and end-of-end stores. Small and medium size supermarkets also store fast-moving goods, and the limited space is filled with high-value items.

Top 5 FMCG Companies in India:

1. Hindustan Unilever Limited (HUL)

2. ITC Limited

3. Nestlé India

4. British industries

5. Marico

The impact of GST on the FMCG sector?

Reduction in Logistics Cost

The FMCG sector got benefited from GST in a way to save a significant amount of costs on logistics. Distribution costs for the FMCG sector amount to 2-7% of total costs, which are expected to decrease to 1.5% after the proper implementation of GST. As a result of smooth transaction management, tax payments, and mortgage demand, the removal of CST under the GST regime will result in a reduction in costs in terms of asset retention. Reduced costs and taxes are expected to make consumer goods cheaper.

Stock Transfers

Transfers of shares outside the State are subject to GST. It is unclear whether the transfer of stock within the State would also be subject to GST. It should be noted that the GST framework was intended to charge only for transfers of shares within the State and not for transfers of internal stocks of the State. In addition, with regard to stock transfer rates, the GST Measurement Rules provide that the value of an asset shall be the transaction value. The transaction amount is the amount paid or paid for the supply of goods. Since stock transfers are not considered, this offer cannot be used. In addition, the GST valuation rules provide that if the transaction amount is not available the value of the goods/service will be considered as the transaction value of the goods/service of the same type and quality.

GST Rate on Fast-moving consumer goods (FMCG)

The FMCG industry has been eagerly awaiting the announcement of GST prices for various products. GST prices for all different goods or products under FMCG have been announced by the Government of India. Most products/goods are categorized under tax brackets as expected by experts in the Fast-moving consumer goods (FMCG) industry. Although there are a few products included in the 12% bracket it is expected to be more expensive than under previous tax law. We have created an infographic that describes different products that fall under various tax brackets.

GST prices for all different goods or products under FMCG have been announced by the Government of India. Most products or goods are categorized under tax brackets as expected by experts in the FMCG industry. Basic food products such as milk, rice, wheat, and fresh vegetables were stored under the NIL bracket in line with the expectations of FMCG experts. The branded Paneer and marketed as a mother’s milk paneer or Nestle Paneer with frozen vegetables were kept under the 5% bracket which was very neutral.

Products such as butter, cheese, and ghee are more expensive under GST as they are set at 12% brackets. Offering dried fruit during Diwali will be more expensive as dried fruit is placed under a bracket of 12% under GST law. Items such as toothpaste, soap, and hair oil – are placed under an 18% tax slab. This is in line with the government’s view of keeping low taxes on massively consumable goods. In fact, the GST rating schedule shows that about 81% of all items are in the tax bracket of 18% or below. The remaining 19% fall on the 28% tax slab. The FMCG sector is very pleased with the prices announced under the GST Act for FMCG Products. The Fast-moving consumer goods (FMCG) sector will benefit from lower utility costs and a better competitive market and higher product prices stored below the expected tax bracket.

Adversely Impacted Firms

Unexpectedly, some of the most widely used products are placed at a maximum tax rate of 28%. The high tax rate on soaps and shampoos is a real dampener because these are used regularly and widely consumed. Items under the premium category are placed below the maximum tax rate of 28%. These include airy drinks, health ingredients, liquid soap, and skincare. This will not have a negative impact on producers as they have been paying the same tax before.

Ayurvedic products are taxed at 12%, slightly higher than the previous levels. This annoys a major company ‘Dabur’, which has a broad portfolio of ayurvedic products and also other ayurvedic companies. Ayurvedic practitioners were expecting the tax rate to drop, with the government’s offer to make traditional Indian medicine. The GST level structure is likely to detect mixed effects. For example, in the case of HUL, tax incidence has decreased with soap, toothpaste, and tea, but has increased in detergent, shampoo, and skincare; and in Godrej’s consumer products, low tax rates on pesticides and pesticides are justified, but the higher tax rates for other products are worst.

Conclusion

The Goods and service tax (GST) is the latest policy developed, introduced, and implemented. GST aims to facilitate tax administration and transparency in all transactions. The FMCG sector which is a key player in the market sector has been affected by GST to some extent. This study concludes that GST influences various aspects of FMCG companies. Many Fast-moving consumer goods (FMCG) companies set up their depots in different states such as Himachal Pradesh / Uttaranchal as they enjoy many holidays/benefits/exemptions under the previous tax regime. It is not yet clear whether all holidays/benefits/tax exemptions will be subject to GST rules or not. Major FMCG companies such as Nestle, ITC, Hindustan Unilever, Dabur, and Cadbury are concerned as the non-relocation of holidays/tax exemptions provided for in the aforementioned laws could hurt the cost of the company’s products. GST change is not just a tax change, it affects all aspects of business operations and therefore requires a ‘whole business’ approach to ensure smooth transitions.

There is an Anti-profiteering issue, the transaction credits and frequent changes in tax rates have given rise to this issue in the Fast-moving consumer goods (FMCG) industries. That resulted in companies not being able to pass the benefits to consumers directly. Also, there is continued confusion on how to compute and determine the manufacturer’s profit. Given the positives and negatives of the GST, it is a mixed bag for the Fast-moving consumer goods (FMCG) sector. Increased clarity on taxes on promotional activities, constant tax rates, and precise computation of tax and profit can make GST even more useful for the growth of the FMCG sector. Only a short period of time has left since GST legislation came into force, and the magnitude or extent of this impact will not be fully understood. It may take some time to determine whether GST could be considered a viable option for Fast-moving consumer goods (FMCG) companies. From now on, it seems to be helping and benefiting these companies.