IMPACT OF GST ON FMCG SECTOR
Introduction
The fast moving consumer good (FMCG) sector of India comprises more than 50 percent of the food and beverage industry and another 30 percent from personal and household care.
The sector is likely to see a significant impact once the Goods and Services Tax (GST) is implemented as the companies set up warehouses across the states in a bid to have a more tax efficient system.
Reduction in Logistics and Distribution Cost
In FMCG sector, substantial savings can be generated by companies in logistics and distribution costs as GST will eliminate the need for multiple sales depots. Effective distribution cost for FMCG companies accounts to approximately 2 to 7% of their turnover, which is expected to drop to 1.5% after implementation of GST.
Input Credit on Supply
Of Goods held in Stock
A registered person, holding stock of goods which have suffered tax at the first point of their sale in the State and the subsequent sales of which are not subject to tax in the State availing credit in accordance with the proviso to sub-section (3) of section 140 shall be allowed to avail input tax credit on goods held in stock on the appointed day in respect of which he is not in possession of any document evidencing payment of value added tax.
Such credit shall be allowed at the rate of [forty per cent.] of the State tax applicable on supply of such goods after the appointed date and shall be credited against the SGST payable on such supply to been paid.
The scheme shall be available for six tax periods from the appointed date.
Elimination of Non-creditable input taxes
No input credit was available for certain taxes like CST, CVD and SAD under the current tax regime. Whereas under GST, there would be input credit available for all the GST payments made in the course of business.
Reduction of Tax Rate
As per the current tax regime, FMCG has to pay many taxes like VAT, Service Tax, Excise duty, Central Sales Tax. Once the GST law will be implemented it will cover all the above taxes under one single point of tax in form of GST. The current tax rate for the FMCG industry including all the taxes is around 22-24%.The GST rate schedule indicates that nearly 81% of all items are in the 18% tax bracket or below. The remaining 19% fall in the 28% tax slab.
Stock Transfer
- Intra- state supply will be liable to CGST and SGST if the goods supplied are not in the same vertical level branches.
- Within the union territory supply will be liable to UTGST except the transfer within Delhi and Pondicherry they will be liable to IGST.
- Inter- state transfer of goods will be liable to IGST.
Saving of cost in maintaining Multiple Warehouses
Multiple warehouses will not consolidate nearly because there is a tax change, because the 2 percent origin tax of central sales tax (CST) will go away. Then there could also be an opportunity to see whether they can consolidate warehouses, but still keeping in mind, the speed to market. So, those are two things that I directly see as a benefit from the FMCG.
Tax holidays benefits & exemptions
A lot of FMCG companies set up their warehouses in states like Himachal Pradesh/Uttaranchal Pradesh as they enjoy a lot of Tax holiday benefits and exemptions under the current tax regime. The companies will still be able to avail those benefits.
