GST@1. FMCG: Some hits, some misses

It has been a mixed bag for the FMCG sector in the GST era. The positives are palpable: a reduction in logistics costs, greater efficiency in supply-chain management, and early signs of an uptick in consumption. But the issue of anti-profiteering norms still hangs above the heads of FMCG players like Damocles’ sword, experts said.

“The GST rates on most FMCG products are either less or just about the same as that during the erstwhile excise-VAT dispensation, and hence there has been significant reduction in logistics cost, estimated in the range of 2-7 per cent of the product cost,” said Atul Gupta, Senior Director, Deloitte India. “However, a big change likely is the gradual shift of consumption patterns — from branded to unbranded goods,” he added.

Companies expect to see a bigger uptick in volumes across categories in the coming days. Sunil Kataria, CEO – India & SAARC, Godrej Consumer Products Ltd said, “We have taken price-cuts across categories and are seeing early signs of consumption picking up. With the budgetary outlay for rural India, and also a likely normal monsoon, I expect the rural economy to accelerate further and drive strong volume growth across our categories.”

However, experts point out that the overall impact of GST has not entirely been positive on the FMCG sector. While admitting that the ease of claiming input tax credit and better supply-management had reduced logistics costs, Suresh Nandlal Rohira, Partner, Grant Thornton India LLP, said “The impact of GST on the FMCG sector has been negative due to issues pertaining to transitional credits and frequent changes in the rates, consequently leading to anti-profiteering issues.”

Though the GST was implemented from July 1, 2017 the GST Council had announced a rejig in rates in November, on nearly 200 items. The FMCG companies were directed to pass on the benefits to consumers immediately. However, many in the sector have now got caught in the tangle of the anti-profiteering norms for not being able to pass on the benefits immediately.

“It is time that the GST Council lays down the sunset date for this provision as the anti-profiteering provision cannot possibly morph into a price-control or a price-regulation scheme. After a year of the GST’s implementation and rate rationalisation, there is no logic in the continued existence of the anti-profiteering provisions,” said Gupta of Deloitte.

He said that though the National Anti-Profiteering Authority has been pragmatic and trade-friendly till now, the lack of clear mechanisms for computation and determination of profiteering under the GST law may lead to the use of arbitrary methodologies for determining the existence of profiteering and could also lead to protracted litigations.

Experts also believe more clarity on the tax treatment of promotional schemes is needed. Rohira of Grant Thornton said, “The authorities should bring in more clarity with regard to the tax treatment and requirement of reversal of input-tax credit on goods given as free samples, under ‘buy-one-get-one-free’ schemes or other promotional schemes provided by FMCG companies.”

Some industry players have also called for clarity regarding refunds promised by the government on area-based exemptions under the previous tax regime, compared to what is being granted now.

“The treatment of area-based exemptions in the GST regime is a key peeve-point for FMCG players, who had invested heavily in setting up manufacturing plants in States based on sops in the pre-GST regime,” said a senior executive with an FMCG firm.

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