GST on FMCG sector: some gain, some lose

The Hindu Business Line By OUR BUREAU May 21

Increase in tax will hurt the ecosystem of farmers, retailers, distributors and bottlers in India, says beverage body

New Delhi, May 21: The tax fitments announced by the GST Council have evoked mixed response from the FMCG sector. While some viewed it as positive, many companies and industry associations expressed disappointment.

Beverage companies said the effective tax rate of 40 per cent on sweetened aerated water and flavoured water under GST is 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 that 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 the soft-drinks were expected to attract a much higher cess of 15 per cent, and 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 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.”

Food processing industry

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

Dabur India CFO Lalit Malik said that 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 that except for home care products and shampoos which now attract 28 per cent GST tax, most FMCG products have been placed at 18 per cent or below levels and this is on expected lines.

Awaiting clarifications

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

A research report from Motilal Oswal said that 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 unorganised to the organised segment.

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