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Impact of GST on the FMCG sector in India

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Impact of GST on the FMCG sector in India (MBA Finance)


Fast-moving consumer goods (FMCG) sector is India’s fourth-largest sector and has been expanding at a healthy rate over the years because of rising disposable income, a rising youth population, and rising brand awareness among consumers. With household and personal care accounting for 50% of FMCG sales in India, the industry is an important contributor to India’s GDP. India's FMCG market was valued at 110 billion U.S. dollars in 2020. Compared to 2012, the market size of fast-moving consumer goods had tripled. By 2027, the market was expected to grow to over 615 billion dollars.

FMCG goods are popularly named as consumer packaged goods. Items in this category include all consumables (other than groceries/pulses) people buy at regular intervals. FMCG giants such as Johnson & Johnson, Himalaya, Hindustan Unilever, ITC, Lakmé and other companies (that have dominated the Indian market for decades) are now competing with D2C-focused start-ups such as Mamaearth, The Moms Co., Bey Bee, Azah, Nua and Pee Safe. Market giants such as Revlon and Lotus took ~20 years to reach the Rs. 100 crore (US$ 13.4 million) revenue mark, while new-age D2C brands such as Mamaearth and Sugar took four and eight years, respectively, to achieve that milestone.

Goods and services tax (GST) is the biggest tax reform in Indian tax system. GST is a successor to VAT used in India on the supply of goods and services. GST is a digitalized form of VAT where you can also track the goods & services. Both VAT and GST have the same taxation slabs. It is a comprehensive, multistage, destination-based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. Multi-staged as it is, the GST is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and as a destination-based tax, it is collected from point of consumption and not point of origin like previous taxes.

Previously FMCG has to pay many taxes like VAT, Service Tax, Excise Duty, Central Sales Tax. After the GST law is implemented it will cover all the above taxes under one single point of tax in form of GST. It is welcomed by all the major players in the FMCG industry. No input credit was available for certain taxes like CST, CVD, and SAD under the old tax regime. Whereas under GST, there would be input credit available for all the GST payments made in the course of business. Under pre GST regime, maximum FMCG products were taxed at rates ranging from 22 percent to 24 percent for example, detergents were taxed at the rate of 23 percent, shampoos and beauty preparations were taxed at the rate of 24 percent to 25 percent, tax on sanitary towels and napkins was about 10 percent to 11 percent, tax on some daily use FMCG products like paneer, ghee, cheese, butter and milk was about 3 to 5 percent. Under the GST regime, FMCG products are taxed under 0%, 5%, 12%, 18% and 28%. However if you deeply examine the impact of GST on individual products, we can see that tax rates of some products have increased. Big companies of this industry like Hindustan uniliver, patanjali, and ITC welcomed GST with open arms. However few firms of this sector are negatively affected by the GST tax rate, which still is changing

Due to the smoother supply chain management, payment of tax, claiming input credit, removal of CST under the GST regime there will be a cost reduction in terms of transportation and storage of goods. It is expected that the reduction in cost and taxes would make the consumer goods cheaper. Recent study of CRISIL suggested that the warehousing cost for FMCG products is likely to reduce by 25-50 percent due to implementation of GST. Implementation of GST increased working capital costs of FMCG companies, as their payments are getting blocked at various levels in value chain. It also increased working capital requirements of FMCG Dealers and Implementation of GST increased working capital costs of FMCG companies, as their payments are getting blocked at various levels in value chain. It also increased working capital requirements of FMCG Dealers and Wholesalers as manufactures of FMCG hold up their payments due to uncertainty about the tax liability and the tax sett-off for the supplied goods and services.

Objective of Study

  • To study Goods and Services Tax (GST) in India
  • To know FMCG – Fast Moving Consumer Goods sector in India
  • To study GST Tax rates of FMCG products with compare to old tax regime
  • To study short term and long term GST Advantages and disadvantages for FMCG Company

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