Act fast on goods and services tax, cut excise duty: FMCG sector

Apart from the early implementation of GST (Goods & Services Tax) and DTC (Direct Taxes Code), the Rs 130,000-crore FMCG industry would like to see a further drop in excise duties across categories such as cigarettes, packaged water, sugar confectionery, condensed milk, biscuits and sanitary napkins in the forthcoming Budget.

“Both the Direct Taxes Code (DTC) and the Goods and Services Tax (GST), are progressive measures aimed at removing bottlenecks and smoothening the process of taxation. They are expected to improve fiscal efficiency. In fact, some optimistic predictions claim that they could enhance India's GDP by 100-150 basis points.

Both these measures will help the FMCG sector except that there are certain daily essential products that would suffer upon joining the GST stream.

There would be an unnecessary cost push for the consumer e.g. edible oils do not currently attract excise duty, and get concessional VAT in various States. GST may end up effectively raising taxation of these products.

We believe that this issue has already occupied the Government's mind and a fair provision could be expected,” says Mr Milind Sarwate, Chief Finance, HR & Strategy, Marico.

Reduction in MAT

The Chairman of the Godrej Group, Mr Adi Godrej, expects the minimum alternate tax rate to be reduced to about 10–12 per cent from the present 18 per cent.

Besides, he would also like the dividend distribution tax rate to be reduced to around 10 per cent. Other FMCG players are also waiting for GST and DTC to get implemented quickly.

Mr Dinesh Dayal, COO, L'Oreal India, said, “Our expectations from the Budget for the FMCG sector are the introduction of GST and DTC by April 1, 2011, with a clear road map for their implementation and, hopefully, a removal of CST (Central Sales Tax).

Steep excise duty

Meanwhile, the steep excise duty (of 10 per cent) on categories such as sanitary napkins has already impacted the margins of listed MNCs including P&G Health & Hygiene. “The imposition of a high slab of excise duty makes it difficult for us to sustain awareness-building, which is crucial for this category and negatively impacts financial viability across our small, medium and large-scale member manufacturers. So far, the policy makers have given us a patient hearing and we sincerely hope that they will consider our request to reverse the excise on sanitary napkins in the upcoming 2011 Union Budget. The social impact of such a decision will improve the lives of over 355 million Indian women, far outweighing the insignificant and short-term revenue loss (less than Rs 80 crore) to the Government exchequer,” said a spokesperson from P&G.

The Feminine and Infant Hygiene Association of India (comprising companies such as J&J and P&G) has sought the waiver of 10 per cent excise duty on sanitary napkins as the duty makes the product expensive. Excise duty on categories such as sugar confectionery and condensed milk also attract 10 per cent excise duty. There is proposal by the makers of these categories to reduce it to between 4 and 8 per cent in the forthcoming Budget.

COMMENT NOW