Impact of GST on FMCG sector in India

No doubt, GST has bought several non-tax payers into the Tax bracket. But, what about some genuine and necessary sectors which have been affected because of the GST? It has vitalized some FMCG companies, but what about the rest? More or less of the FMCG sectors have been touched by this new regime. FMCG sector is the fourth biggest economy in India, which is sectioned into three categories as Food and Beverages, Household and Personal Care and Health Care, and their rates getting accounted are 19%, 50% and 31% respectively


Some companies such as HUL, P&G, Jyothy Laboratories, Nestle, Dabur, Himalaya etc. come under the list of GST impacted companies

As per the statistics, these companies have been taxed higher, than the old tax rates.


Companies Impacted HUL, P&G, JYOTHY LAB AMUL, NESTLE, MOTHER DAIRY HUL, P&G, DABUR, HIMALAYA, PATANJALI HUL, DABUR, HIMALAYA, P&G
Product Detergents Butter, Ghee, Cheese Shampoo Skincare
Previous Rates 23% 4-5% 24-25% 24-25%
Post GST Rate 28% 12% 28% 28%

However, tax rates on Toothpastes, hair oil, soaps are reduced from 22-24% to 18%. This has favorable impact on Colgate-Palmolive, HUL, P&G, etc.

Not only this, it impacted the other FMCG products too. As, it affected the top notch companies, the companies started revising their rates and prices according to the GST implementation, and thus benefitted the factory as they started with cost cuttings, the distributors started saving on their transportation costs, and of course the consumers availed the products at a low rate because the companies started to revise their prices.

Lets see, what GST has done till now-

The government tried to place GST rates with Indirect tax (VAT, sales, octroi etc.), to control inflation in the country and to avoid the negative impact on consumer. The consumer edibles such as cereals, milk and other mass consumption products were marked at 5%, stationaries, medicines, and fruit juices were fixed at 12%. Other FMCG such as cosmetics were pegged at 18%, and the luxury cosmetics were included in 28% GST rate.

It adversely started affecting the consumers of these products, but as there was a great deal of interference from the distributors and the consumers, the government addressed this concern and reduced the rates from 28% to 18% which came in effect from November, 2017.With this tax regulation, the companies had to file their GSTIN invoice, the bigger organizations could account these details with the help of tax consultants, but small companies struggled to fulfill these tax regulations.

Companies such as Marico, and Colgate has benefitted from the GST structure, the edible oil rates, the tooth paste rates can be availed at a low price. But you cannot gift dry fruits, as it has become an expensive FMCG product. Other dairy products such as Ghee, cheese, butter has to be used wisely, keeping their rates, but don’t worry, they will revise their price as well. “We believe it could result in a faster consumption shift from unbranded to branded products, spurring volume growth for FMCG companies. Simultaneously, it will also bring operational efficiency with rationalization of supply chain by removing bottlenecks,” says Sanjay Manyal, Analyst, ICICI Securities. He also pointed out that tax exemption provided to several critical products required for food processing — jaggery, cereals, and milk — would benefit this industry.


Impact of GST on FMCG business costing-

1. Logistics costs

The GST has put up a positive effect on reducing the logistics cost, which has benefitted the FMCG companies a lot. GST is helping the FMCG companies to save some amount of logistic and transport charges. Previously, the distribution costs was around 2 to 7% of the total cost, but now it has now dropped to 1.5%. Now, at least, the companies save their costs and do more towards the society’s welfare. So, the GST has impacted in a very positive way for companies, as they have made the supply chain management to run smoothly and effectively, in regards to timely payment of tax, correct claims of input credit, and CST removal too. This tax deduction in logistics and transports have benefitted the consumers to avail the company products in much cheaper rates.



2.Warehouse

Warehouses are used to distribute the goods locally. The finished goods from the factory arrives at warehouses and they get distributed to retailers and customers in the specific areas. Previously, the warehouses were set up on at those states where the effective tax were low, and this also affected the transport costs for the distributors and the manufacturers. But now, the distributors and the manufacturers don’t have to worry about their costs, as GST is helping them to cut their costs. With the execution of GST in the country, the FMCG companies can set up their warehouses anywhere, in any state.



3. Foreign Investment

The foreign investments has now increased in India. Our country is now a unified market. Thanks to GST. The FMCG goods that are manufactured in India has now become more competitive in the international markets, because of its low production cost. As the GST has reduced its export cost and production cost both. The implementation of GST has lowered almost all taxes and made it easier for manufacturers and business owners to sell in the global and international market without any hassle.


4.Business Cost

The GST implementation has reduced all taxes and some taxes have been totally removed from the Indian Market and the CST has been removed under the GST regime. The CGST and SGST has replaced many other taxes such as Service Tax, Central Excise Duty, Custom and Octroi Duty etc. You might have noticed these replacements and cost reductions on your restaurant bills, shopping bills. It feels really good, when you see your money is getting saved on your bills. The business cost have also been reduced and totally cut. GST have changed VAT. Now if you are a business owner, you don’t have to pay the different amount of taxes in every state. The GST is one tax system for all over India, so you have got rid of other small taxes and amounts


Real thanks to GST, it has not only benefitted our customers but also the small business owners and entrepreneurs. Not just this, there are more benefits of GST. If we consider this impact, then we can surely reduce the Black money in the country. It had few initial troubles, but now it has become a positive factor in the country. One Nation, One Tax!