Impact of GST on FMCG Sector

The FMCG sector in India is the fourth largest sector in the economy with a gross market size in excess of U.S. $ 13.1 billion. Fast Moving Consumer Goods(FMCG) goods are more commonly referred to as consumer packaged goods. Things in this group include all consumables (except food/beats) people buy on a consistent frequency. FMCG is also one of the fastest growing sectors amongst all sectors in the Indian economy.

As per the current audit process, FMCG has to pay a number of taxes such as VAT, Service Tax, Excise Duty, and Central Sales Tax. With the introduction of GST legislation all of these taxes will be subsumed under 1 singular tax system which is GST. The current tax rate for the FMCG sector including all the taxes stands at approximately 22-24%. The GST could likely be introduced at an average rate of 18-20%.

There is a school of thought that certain groceries such as milk, vegetables, rice, and wheat should be kept under the NIL bracket. Looking at the pricing, commodities like ‘Mother Dairy’ Paneer and Nestle Paneer have been charged a tax at 5% which is reasonable considering the option of ‘Wheat Granules’ priced at around 3 – 4%. Similarly, frozen produce attracts around the same Les than 5% making it comparatively reasonable as well currently.

Indeed, there are specific types of products such as Butter and Cheese in the present day that are expected to be charged a bit costlier amping their current taxing percentage from a 4- 5% tax rate to a range of 12% due to GST imposition. Come Diwali and introducing dry chemical compounds in consumables will be quite expensive bearing in mind that dry substances come under the bracket of 12% with regards to GST.

Considering the previously mentioned facts, It is safe to state that the overwhelming majority of FMCG companies have welcomed the implementation of g S T and its related services. The ease of transportation and better services will be followed by lower dealing costs for all the firms which will allow them to fare better regardless of which Tax or Revenue bracket it is in.

More Details Needed Regarding the FMCG Sector

Many FMCG companies set up their warehouses in locations like Himachal Pradesh/Uttaranchal because they enjoy a number of benefits/benefits/exemptions under the current tax system. Whether all the tax benefits/exemptions would exist under the GST promulgation is still not clear, however, once implemented.

Leading, largely because their operations span many countries, senior personnel of Nestle, ITC, Hindustan Unilever, Dabur, Cadbury. and other multinational holding companies are anxious regarding the non movement of Tax holidays/exemptions provided to the organisations under the current regulation. Another aspect of the GST reform is not only a change of tax alone; it touches every aspect of the business operations hence it requires a ‘total business’ approach to facilitate easy transition.

All the key players in this sector of the economy would welcome this broader view of the industry. Certain taxes such as CST, CVD and Sad were not eligible for input credit under the current taxation regime. On the other hand, with the implementation of the GST, all the taxes paid in the course of business would be made neutral through input credit provided for all the GST payments.

Influence of GST on FMCG Sector

Reduction on Logistics Dispenses

As we know the GST is a broad based tax levied on the supply of goods and services, this single tax marks a sweeping benefit for the Indian economy. The savings on the logistics costs is another area in which the FMCG sector would also benefit with the coming of the GST, Given this issue of the Seagull, it can be claimed that the operational cost or the average transportation cost per unit for all products manufactured or sold in India is between two to seven percent. It is expected that, after the implementation of the Goods and Services Tax, this rate will drop to one point five percent.

There will however be a reduction of expenses related to the movement and storage of goods due to the gradual evolution of the system of management of the supply chain through seamless payment of tax, securing input tax credit, and axing of the central sales tax (CST) under the GST regime. Suppose that cost and expenses are reduced, the goal of making the consumer goods relatively cheaper is highly achievable.

Stock Transfers

Moving stocks out of the state will be according to the GST. It is unclear whether stock transfers taking place within the State will also be subject to GST. However, it has to be noted that the intention of the GST architecture was to impose tax only on the inter-State stock Transfers and not intra-State stock Transfers. In addition, regarding the valuation of stock exchanges, the GST Valuation Decides provides the general rule that the benefit of goods in a stock exchange transaction will be the transaction value.

Transaction value means the amount that has been paid or that should be paid to purchase the merchandise stock. Since stock exchanges do not have an idea, this provision cannot be implemented. Moreover, the GST valuation decides that if the exchange value is not available then the value of a long term asset/service would be treated as the exchange value of an asset/service of that class or kind and quality.

GST rate on FMCG goods

The FMCG industry was tensely hanging tight for the GST rates to be declared on the various items. GST rates for all kinds of merchandise or items under the FMCG have been reported by the Indian Government. The vast majority of the items/products have been classified under the expense sections true to form by the FMCG business specialists.

Despite the fact that there are not many items set under the 12% section as most would consider being normal to be more costly than under current regulations.

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