1. GST impact on consumer goods: Here is all you want to know

GST impact on consumer goods: Here is all you want to know

Logistics are an integral part of the sector and as logistics costs are expected to decrease in the GST regime—CARE ratings expects a 20% trim—FMCG companies will benefit.

Updated: June 28, 2017 7:33 AM
GST, GST rollout, GST law, GSt implementation, GST impact on consumer goods, GST impact indian concumer market, GST impact on india, FMCG, GST on FMCG sector, GST on Ayurvedic medicines Ayurvedic medicines, shampoos, detergents and aerated beverages to bear the brunt of GST. (Image: PTI)

Chitra Pratap & Utkarsh Anand

For the general populace a tax scheme’s success is often gauged by how much disruption it causes to everyday life. While it is true that GST is expected to make processes much easier, both for the government as well as businesses, it is its impact on FMCG sector that is of much consumer interest. And, the Indian economy’s fourth-largest sector—fast-moving consumer goods (FMCG)—will be significantly impacted by the GST. Logistics are an integral part of the sector and as logistics costs are expected to decrease in the GST regime—CARE ratings expects a 20% trim—FMCG companies will benefit. Distribution costs companies 2-7% of their turnover. Earlier, FMCG companies would establish warehouses in states where effective taxation was low. With the implementation of GST, owing to uniformity in taxation firms would be free to setup warehouses in any state, reducing costs of transportation.

Further, it is expected that the supply chain will be optimised in the GST regime, provided there is compliance by the distributors. It would also serve as a mechanism to bring untaxed players into the tax net (a large section of the industry still operates within the unorganised segment) and level the playing field for everybody. Nearly 81% of all FMCG items are in the 18% tax rate or below. Inputs in food processing industry, such as staples (pulses and foodgrains), jaggery, cereals and milk, are exempt from GST, and items such as sugar, tea, coffee and edible oil will carry a concessional GST rate of 5%. Items of mass consumption, including toothpaste, soap and hair oil, which attract a tax rate of 22-25% (applicable in most of the states), will be taxed at 18% under GST.

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There will, however, be a higher rate for detergents and shampoos, at 28%—the highest tax bracket. Surprisingly, even though the government was gung-ho on promotion of AYUSH, it has put Ayurvedic medicines in the 12% tax bracket, up from the existing 7%. Aerated beverages are also impacted by GST. While aerated beverages were usually taxed around 28% in most states—exception being Punjab where the tax was 43%—being categorised as sin goods they will attract a total duty of 40% (28% tax and 12% additional cess).

On large FMCG companies, the overall effect of GST is going to be neutral—as some goods would attract increased tax rates whereas others will enjoy lower taxes. Apart from the collateral advantage gained by the transformation of the industry into an organised one, and the advantage that companies will gain through lower distribution and logistics cost, the difference in the rate, whether positive or negative, will have to be borne by the consumer.

 

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