GST rollout: Impact on FMCG to be largely positive, says experts

The rollout of the goods and services tax (GST) will be largely positive for the fast-moving consumer goods (FMCG) sector, according to experts.
GST rollout: Impact on FMCG to be largely positive, says experts

KOCHI: The rollout of the goods and services tax (GST) will be largely positive for the fast-moving consumer goods (FMCG) sector, according to experts. The major reason being the tax rates are mostly on expected lines.

In India, the FMCG sector comprises 50 per cent of the food and beverage industry and another 30 per cent from personal and household care.

“In line with our expectations, the impact of GST rates on the FMCG sector will be largely positive. The rates decided for the major FMCG products are lower than their current tax rates,” said Suresh Nandlal Rohira, partner, Grant Thornton India.

According to him, tax rates of hair oil, toothpaste and soaps has been set at 18 per cent which is below the current effective tax rates applicable in most of the states.

“Further, milk and cereal have been kept exempt, which is bound to provide relief to a large group of consumers,” he noted.

There is also a silver lining for FMCG companies in the country under GST. Currently, distribution costs account for 2-7 per cent of the turnover for these companies. At present, the FMCG companies set up warehouses covering every state, engaging stock transfers among them, which in turn

facilitate selling of goods to distributors locally. They usually set up warehouses in states where the effective taxation is low. With GST, they can easily put up storage facilities wherever they want.

“With the revised transition rules whereby the credit on closing inventory without excise invoice is increased to 60 per cent, the network of dealers/distributors across the FMCG distribution network should get the desired relief. The opportunities in optimising supply chain are a big plus for the FMCG sector. The biggest challenge going forward will be the readiness of dealers/distributors to meet GST compliance requirements,” Sachin Menon, partner (indirect tax), KPMG India said.

Vaibhav Agrawal, head of research at Angel Broking, said FMCG companies will see a wider market opening up for them and will be positive for stocks such as ITC, Britannia Industries, Colgate Palmolive and Hindustan Unilever.

“Many important inputs for the food processing industry like jaggery, cereals and milk have been exempted from GST altogether. On the other hand, products like sugar, tea, coffee and edible oil will carry concessional GST at the rate of five per cent. The tax bracket on toiletries like hair oil and soaps has been maintained at 18 per cent, which is a major relief for companies and consumers alike,” he said.

How the industry adapts to the change is the only concern, but it is common for all sectors, industry players point out.

“We are still closely evaluating how these rates are going to impact the raw materials for bread and working hard to understand the whole accounting part of the GST to implement it effectively once it goes on stream. Overall, we only see minimal impact on bread pricing for the end consumer/customer,” said Aseem Soni, CEO and board member, Modern Food Enterprises.

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