Economy

GST on FMCG sector: some gain, some lose

?Meenakshi Verma Ambwani New Delhi | Updated on January 11, 2018 Published on May 21, 2017

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The tax fitments announced by the GST Council has evoked ​a ​mixed response from the FMCG sector​, with some viewing it as positive, ​while ​many ​others have expressed disappointment.

Beverage companies​, for instance, said the effective tax rate of 40 per cent on sweetened aerated water and flavoured water under GST ​was against the stated policy of maintaining parity with the existing weighted average tax, which is significantly below 40 per cent. Aerated beverages have been placed in the highest tax slab of 28 per cent and in addition will attract a cess of 12 per cent.

In a statement, the Indian Beverage Association (IBA) said​: “This increase will have a negative ripple effect and hurt the entire ecosystem of farmers, retailers, distributors and bottlers in India..This increase in tax will further limit the growth of the beverage industry.”

IBA also said imposing cess on non-aerated flavoured water and nutrition drinks was not in line with the stated intentions of levying cess only on aerated drinks.

Though analysts pointed out that that soft drinks were earlier expected to attract a much higher cess of 15 per cent, at 12 per cent the effective tax rate works out to be lower than anticipated.

Talking about the overall FMCG sector, Suresh Nandlal Rohira, Partner, Grant Thornton India.​ said, “The GST rates decided for the major FMCG products are lower compared to their current tax rates. Tax rates of common use products such as hair oil, toothpaste and soaps have been set at 18 per cent, which is below the current effective tax rates applicable in most of the states.”

Analysts also pointed out that the many important inputs required for the food processing industry such as jaggery, cereals and milk, being exempted from GST, is expected to be beneficial for the industry.

Dabur India CFO Lalit Malik said the new rates were marginally favourable. “We are disappointed with the government’s decision to levy 12 per cent GST on Ayurvedic medicines and products, which we feel will be adverse for the Ayurvedic medicines category and that too at a time when the government has been talking about promoting traditional Indian alternative medicine,” he said.

He said ​e​xcept for homecare products and shampoos, which now attract 28 per cent GST tax, most FMCG products have been placed at 18 per cent or below, and this is on expected lines.

FMCG companies also said they are awaiting clarifications on service tax and excise exemptions before they can calculate the full impact.

A research report from Motilal Oswal said the impact of GST will be neutral to positive for many companies. With the implementation of GST, many companies in the FMCG sector will also gain as a result of the potential shift from the unorganised segment to the organised segment.

Published on May 21, 2017
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