By benefitting the FMCG industry, new Goods and Services Tax (GST) regime will boost the national economy. The tax incidence of many Fast Moving Consumer Goods Companies has come down under the GST regime. All those FMCGs are requested to pass it on to the consumers in the form of lower prices. We cannot ignore that fact that a large section of the industry still operates under the unorganized segment. The new agreement of taxation will bring supply chain efficiencies, untaxed players under the tax zone, and unorganized sector under the organized area. But yes, not all FMCG will get benefit from GST rate structure. Let’s have a detailed discussion about the lines – the benefit line and the detriment line.
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The benefit line
80 percent of all items are in the 18% tax bracket or below. Moreover, the government tried to keep low tax rates for mass consumption products. Most of the FMCG products available in Indian market are along the benefit line, under GST regulation. Daily use items like soaps, hair oil, toothpaste, have been put under the 18% tax slab. Sanjay Manyal, ICICI Security Analyst, said, “With the anti-profiteering clause in place, companies would be required to pass on the benefit of tax rates to the consumer in the form of lower prices.” In adherence to his statement, lower prices could potentially support volume growth for individual products in the rural portion of the country. GST on FMCG has been implemented across the country. Now it is time for the companies like Asian Paints Ltd., Patanjali Ayurved Ltd., Amul., ITC FMCG., Godrej Consumer Products Limited., Dabur India Ltd., Guruji Products Limited., or Hindustan Unilever Limited to modify their prices. It is their fundamental responsibility to give the benefit of new tax slab to their customers.
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The detriment line
Well, some of the daily use products been placed above the 18% tax slab. If we take the examples, we get the items like paints, shampoo, detergent, and baby food. That’s why most of the manufacturers will have to pass on the higher tax incidence. But the products like skin care, liquid soap, aerated drinks, etc. come under the tax slab of 28%. So, the Goods and Services Tax (GST) will not have much impact on the sale volumes. Lalit Malik, the CFO of Dabur India, said, “We are disappointed with the government’s decision to levy 12 per cent GST on Ayurvedic medicines and products.”