Shares of FMCG companies rallied on Friday after the goods and services tax (GST) Council approved on Thursday finalised 7 set of rules for the new indirect tax regime. The council is meeting on Friday to finalise tax rates on service. The GST rates for select products have been disclosed wherein lower tax rates on FMCG products was on expected lines.
At 11.01, FMCG index was trading 3.38 per cent up. While prominent FMCG companies like Dabur was trading up 2.09 per cent, ITC up 5.12 per cent, Hindustan Unilever (HUL was up 2.20 per cent and Colgate-Palmolive (India) Ltd was up 3.71 per cent. Sensex was trading +100.64 points up at 30,535.43 during the same time. Domestic stock markets also made a strong opening on Friday following GST Council’s finalisation of tax rates for bulk of the items except six categories. Firm global cues also added to the market sentiments.
Brokerage House Edelweiss has called FMCG a clear winner after the finalised tax rates. It said, “GST is a structural reform and expected to accelerate the pace of GDP growth in India, despite implementation challenges in near term. GST regime will usher in lower taxes, seamless input tax credit, logistics savings and market share swings from unorganised to organised players.”
Six items were kept in 5, 12, 18 or 28 per cent tax brackets, while cars will attract the top rate as also a cess in the range of 1 to 15 per cent on top of it.
Another brokerage house Nirmal Bang Research’s take on various sector after GST finalisation is mixed. It expects positive one for commonly used FMCG goods like soap, toothpaste and hair oil (but this was largely expected) but negative one for others that are not commonly used where tax incidence seems to have increased from 24% to 28% (not expected). Cigarette companies’ will face a cess of 5%.
It further added that the news is positive for Colgate and Dabur but marginally negative for ITC, HUL, Godrej Consumer, Marico, Emami and Gillette. The new GST rates seem marginally negative for white goods (absolute rates go up). Marginally negative consumer durable companies.
Below is the breakup of the finalised tax so far:
– Aerated drinks under 28 per cent bracket along with a cess of 12 per cent. However, rates for bidis along with gold, footwear, bidi, biscuits and agriculture equipments would be decided later.
– While meat, fresh vegetables, honey, jaggery, prasadam, kumkum, bindi, pappad and contraceptives exempted from GST levy.
– Pizza bread, sevaiya, condensed milk, frozen vegetables to attract 5 per cent levy
– Electricity generation to get cheaper as GST on coal has been brought down to 5 per cent from the current tax incidence of 11.69 per cent
– Common use products like hair oil, soaps and toothpaste will be charged with a single national sales tax or GST of 18 per cent instead of present 22-24 per cent tax
– ACs and refrigerators will fall in the 28 per cent tax slab
– Life- saving drugs have been kept at 5 per cent rate.
– All capital goods and all industrial intermediaries would attract 18 per cent tax instead of 28 per cent
– Milk and curd will continue to be exempt from taxation when the GST replaced current indirect taxes.
– Mithai’ or sweets will attract 5 per cent levy.
-Daily-use items like sugar, tea, coffee (barring instant coffee) and edible oil will attract the lowest tax rate of 5 per cent
-While frozen meat will attract a GST of 12 per cent
-Ayurvedic or homeopathy medicines, agarbatti, umbrella, electric vehicles and mobile phone manufacturing will be taxed at 12 per cent
– Pastries and cakes, pasta, ice cream and soups, instant food mixes, betel nut, vinegar and sharbat will attract a 18 per cent tax
– Highest tax of 28 per cent will be levied on chewing gum, chocolates, custard powder and waffles containing chocolate.