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GST AND ITS IMPACT ON FMCG SECTORS IN INDIA.

Conference Paper · December 2020

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Journal of Information and Computational Science ISSN: 1548-7741

GST AND ITS IMPACT ON FMCG SECTORS IN INDIA.

CMA Satish Dhokare.

Research Scholar
Dept. of Commerce and Research Center, Sangamner
S. N. Arts, D. J. M. Commerce & B. N. S. Science College.
Sangamner, Ahmednagar

Abstract
GST is one among the foremost critical tax reforms in India which has been long
awaiting decision. It’s a comprehensive legal system which will subsume all indirect taxes of
State and central Governments and whole economy into seamless nation in national market.
Goods and Services Tax (GST) are going to be a game changing reform for Indian economy by
developing a standard Indian market and reducing the cascading effect of tax on the value of
products and services. GST may be a consumption based tax levied on sale, manufacturing and
consumption on goods & services at a national level. The fast paced commodity (FMCG) sector
of India comprises quite 50 percent of the food and beverage industry and another 30 percent
from personal and household care. Under the proposed GST regime, it's expected that it might
end in an easier tax regime, especially for industries like FMCG. Under this technique, one
product are going to be taxed at an equivalent rate in every corner of the country thus we also
refer GST together NATION ONE TAX.
The fast-moving commodity are our important contributors to both direct and tax. Once
we check out the GDP contribution, FMCG is a crucial player. Goods and repair Tax which
subsumed most of the indirect taxes within the country would have a big impact on the fast-
moving commodity sector. This research paper being a quantitative research uses data from
journals, articles to research the impact of GST on the businesses within the FMCG sector.The
main objective of the paper is to understand how GST has impacted the businesses within the
FMCG sector. This paper will help to point out that, what is going to be the impact of GST after
its implementation on FMCG and what is going to be the benefits and drawbacks of GST on
FMCG sector.

Keywords: Central, State, Dual, GST, tax , tax , Implementation.

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INTRODUCTION
After Demonetization, GST has been one among the most important transformations that
India has seen in years. Amidst the hustle bustle going round the nation, GST became a game
changer for the Indian Economy, certainly affecting the “Aam Aadmi” to the Business
Entrepreneurs also . From boosting up the buyer goods-industry (FMCG Industry) to cause
varied benefits to the economy, the new Goods and Services Tax (GST) regime can make the
market go up within the shortest time.
It is quite evident that GST has made a clear change within the Indian Economy and
FMCG, fourth largest sector within the economy, is amidst one among them to witness an
equivalent . the very fact is undeniable that FMCG is one among the fastest growing sectors of
the Indian Economy. VAT, Service Tax, Excise duty, Central nuisance tax etc need to be paid by
the FMCG Sector under the present GST Regime.

Companies like Marico, and Colgate has benefited from the GST structure, the edible oil
rates, the tooth paste rates are often availed at a coffee price. But you can't gift dry fruits, because
it has become an upscale FMCG product. Other dairy products like Ghee, cheese, butter has got
to be used wisely, keeping their rates, but don’t worry, they're going to revise their price also .
“We believe it could end in a faster consumption shift from unbranded to branded products,
spurring volume growth for FMCG companies. Simultaneously, it'll also bring operational
efficiency with rationalization of supply chain by removing bottlenecks,”

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The fast paced commodity (FMCG) are popularly named as consumer grocery . Items
during this category include all consumables aside from groceries or pulses people patronize
regular intervals. FMCG is one among the fastest growing sectors among all the sectors within
the Indian economy. The Indian FMCG sector includes 50% of the food and beverage industry
and 30% from personal and household care.

OBJECTIVE OF THE STUDY:

 To understand the concept of GST.
 To Analyse the Impact of GST on FMCG Sectors.
 To study the positive & Negative impact of GST on FMCG Sectors.

Goods and Services Tax (GST) implementation is one among the most important tax
reforms in India since independence. the present tax structure is extremely complex and differs
from state to state. The evolution of GST are often seen as a gradual transformation of a
disparate, complex and cascading tax structure in to a largely unified value added system of
taxation. the present tax structure are often classified into three categories:
 Central indirect tax: Custom duty, Central excise duty, Central service tax etc.
 State indirect tax: Value added tax (VAT), entry tax, luxury tax, entertainment tax etc.
 Local tax: Octroi and other entry tax
Highlights of the GST tax structure are:
 Dual GST for centre and states, Integrated GST(IGST) on interstate transactions
 Free credit flow- No cross credit for Central GST (CGST) & State GST (SGST)
 Refund of unutilised accumulated ITC (income tax credit)

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The impact of current fiscal policies has been such most companies had to offer priority
to tax benefits over operational efficiency. As an example, many companies have established
warehouses altogether states where they need a big market size and transact on “stock transfer”
as how to nullify CST which is paid during interstate sales. Post GST, the very existence of the
many of those facilities has inherit question .GST regime has brought several benefits for the
economy and has vitalised the fast-moving commodity (FMCG) industry. While there are big
players within the industry, an enormous share of the market is un organized. GST helps level
the sector .However, the GST rate structure reflects not all FMCG companies stand to profit
from the new regime. This is often in accordance with the government’s stance of keeping rate
low for mass consumption products. As a matter of fact, the GST rate schedule indicates that the
majority of the things are within the 18% income bracket or below. Only 50 items fall within the
28% tax slab. Post GST, tax incidence for FMCG companies has come down and therefore the
companies have passed it on to the consumers within the sort of lower prices or higher quantity
for same price.

THE POSITIVE IMPACT OF GST ON FMCG:

1) Fall within the Logistics Cost:
Due to the subsumption of taxes like VAT, Entry tax and OCTROI, logistics tax has
decreased significantly. Post GST, logistics cost for FMCG goods reduced by quite 2%, and for a
few products, by 5%. The reduction in logistics cost will increase the demand for these goods, as
they're generally ‘fast-selling goods’. This especially applies to non-branded products.

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The benefit under the GST Regime would be visible and considerable saving amount of
expenses on logistics are often seen in FMCG Industry. the entire cost of the distribution of the
FMCG industry sums up to 2-7%, which could fall to 1.5% after the entire implementation of
GST. an enormous impact and alter are going to be seen in terms of cost reduction due to the
payment of tax, smoother supply chain management, removal of CST, claiming input credit,
under the GST Scenario. The result will cause cheaper commodity . The GST has put up a
positive effect on reducing the logistics cost, which has benefited the FMCG companies tons .
GST helps the FMCG companies to save lots of some amount of logistic and transport charges.
So, the GST has impacted during a very positive way for companies, as they need made the
availability chain management to run smoothly and effectively, with regard to timely payment of
tax, correct claims of input credit, and CST removal too. This tax write-off in logistics and
transports has benefited the consumers to avail the corporate products in less expensive rates.

2. Greater efficiency in supply-chain management:

Earlier, manufacturers were required to open a warehouse in every state, to trade those
areas. However, with the introduction of GST, this is often not necessary. Thus, the availability
chain has become more efficient for FMCG goods.

3. An uptick in consumption:
With reduced indirect and logistics cost, the ultimate production of FMCG goods has
now become cheaper. This has benefited both, manufacturers also as end consumers. This has
especially helped manufacturers in rural areas. Thus, there's an increase in demand for these
goods.

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4. Warehousing cost:
Warehouses are wont to distribute the products locally. The finished goods from the
factory arrives at warehouses and that they get distributed to retailers and customers within the
specific areas. Previously, the warehouses were found out on at those states where the effective
tax were low, and this also affected the transport costs for the distributors and therefore the
manufacturers. But now, the distributors and therefore the manufacturers don’t need to worry
about their costs, as GST helps them to chop their costs. With the execution of GST within the
country, the FMCG companies can found out their warehouses anywhere, in any state.

5. Foreign Investment:
The foreign investment has now increased in India. Our country is now a unified market.
Because of GST. The FMCG goods that are manufactured in India has now become more
competitive within the international markets, due to its low cost. Because the GST has reduced
its export cost and cost both. The implementation of GST has lowered most taxes and made it
easier for manufacturers and business owners to sell within the global and international market
with none hassle.

6. Business Cost:
The GST implementation has reduced all taxes and a few taxes are totally faraway from
the Indian Market and therefore the CST has been removed under the GST regime. The CGST
and SGST has replaced many other taxes like Service Tax, Central Excise Duty, Custom and
Octroi Duty etc. you would possibly have noticed these replacements and price reductions on
your restaurant bills, shopping bills. It feels specialized , once you see your money is getting
saved on your bills. The business cost have also been reduced and totally cut. GST have changed
VAT. Now if you're a business owner, you don’t need to pay the various amount of taxes in
every state. The GST is one legal system for everywhere India, so you've got got obviate other
small taxes and amounts.

7. Stock Transfers:
With the shift of taxable event from sales to provide consequentially stock transfers under
GST would be taxed and this scenario would definitely impact few corner and care of key
industries like FMCG, Pharma to the extent of costs savings in procurement, review procurement
contracts, impact on free supplies, discount schemes, impact on product pricing, and therefore
the overall financial impact of GST.
In case of seasonal industries where sale happens in specific periods (fertilizer, woollen,
clothes etc) entrepreneur would wish to pay in cash (or through accumulated credit) within the
month/ quarter of dispatch leading to blockage of capital . Waybills and check-post related

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compliance would affect removal, optimization of delivery schedules, operating expense and
competitive pricing

THE NEGATIVE IMPACT OF GST ON FMCG:

1. Transitional credits:
Earlier, FMCG companies had to line up units, in several states to trade within them. the
businesses also received area-based exemptions on taxes. Therefore, FMCG companies had
invested heavily in these states to open factories. However, with the introduction of GST, there’s
a touch of ambiguity regarding tax refunds to those players.

2. Frequently changing rates:

In November 2017, tax rejigs on 200 FMCG goods were announced by the GST Council.
the shortage of clarity in tax treatment has led to immense confusion for various FMCG goods.
for instance , there's obscurity on applicable taxes on a ‘buy one –get one free’ product. it's also
unclear how FMCG companies must apply promotional schemes.

3. Anti-profiteering issues:
The transitional credits and frequent changes in tax rates have given rise to anti-
profiteering issues within the FMCG sector. Hence, companies haven't been ready to pass the
advantages to customers directly. additionally , there continues to be ambiguity on the way to
compute and determine the manufacturer’s profit.
Given the positives and negatives of GST, it's a assortment for the FMCG sector.
Increased clarity on taxes on promotional activities, constant tax rates and precise computation of
tax and profit can make GST even more useful for the expansion of the FMCG sector.

4. No input credit on free samples:

In the FMCG industry promotional schemes like Buy 1 Get 1 Free are quite common .
Under the previous regime no VAT had to be charged on free samples, however consistent with
sec 17 (5) of the CGST Act, an input decrease won't be available for goods given as gifts or free
samples. Non availability of input credit increases promotional expenses of FMCG companies,
which ends up in increasing overall prices of FMCG products

5. Increase capital requirement:

Implementation of GST increased capital costs of FMCG companies, as their payments
are becoming blocked at various levels in value chain. It also increased capital requirements of
FMCG Dealers and Wholesalers as manufactures of FMCG delay their payments thanks to
uncertainty about the liabilities and therefore the tax sett-off for the supplied goods and services.

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CONCLUSION
GST effects the FMCG sector by adjusting tax brackets and falling distribution costs for
various businesses. Few companies will “gains” with lower taxes and distribution costs, and thus
may respond by increasing product volume and lowering prices, while others may “lose” with
higher taxes, and thus got to compensate by increasing prices. There are some instances where
the rate under GST is above this tax rates, and in such cases, several dealers could increase their
stock levels within the run up to GST. On the opposite hand, in those cases where the GST rate is
less than the present tax rates, dealers would attempt to keep minimum stock and eliminate non-
moving stock before the onset of GST.
Since different products are taxed at different rates, on a macro level, the typical tax and
therefore the final prices that the top customer finishes up paying will average out, with some
products becoming costlier et al. becoming cheaper.
Implementation of GST saw large companies reporting sluggish growth numbers for June
quarter,hit by de-stocking on the a part of channel partners before GST taking effect. However,
as per the above analysis, FMCG companies are likely to profit in GST scenario. the larger
benefit accrues from there-distribution strategy being adopted by big players within the industry.
this may take time to reflect results because it involves multiple stakeholders and alter in
mindset, but is certainly getting to reduce costs and improve operational efficacy. it's the buyer
who ultimately benefits from the above. the businesses need to fix for creating best use of the
opportunities to stay competitive and improve margins by re aligning distribution strategy.

REFERENCES
1. Indirect tax committee, institute of Chartered Accountants of India, (2015). Goods and
Services Tax (GST) Retrieved from: http://idtc.icai.org/download/Final-PPT-on-GST-
ICAI.pdf
2. Impact of GST on FMCG industry, (2016, September 7). Retrieved from
http://www.onlinegst.in/impact-of-gst-on-fmcg-industry/
3. Dr. Mohan Kumar and CA Yogesh Kumar “GST & it’s Probable Impact on the FMCG
Industry in India” Retrieved from International Journal of Research in Finance and
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Sector in India” Retrieved from International Journal of Research in Business Studies
ISSN: 2455-2992, Vol. 2 (2), Dec. 2017.

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5. Subramanian, H. (2015, June 11).). EY - GST: Boon or bane for FMCG (Blog Post)?
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