Upcoming GST understanding and expectations
10 Jun 2017
With the GST is ready to be rolled out next month, there are various sectors that will have a positive as well as an adverse impact on their business. There are several benefits for the economy that will give a strategic push to the fast moving consumer goods industry.
Apart from bringing the untaxed players under the tax net, the players in the unorganized sector will level the playing field for the established players.
Under GST, the items of daily use will be taxed at 18%, this includes oil, toothpaste, etc. Further, products like shampoos, hair creams and chocolates will be taxed at a higher rate of 28%.
There is a positive impact on the commonly used FMCG goods while the higher tax rate for the remaining goods will be marginally negative for the market. The majority of the goods fall under 28%, while there is a minor segment that is under 18% rate. The goods of mass consumption have been maintained at a lower rate and the Government has tried to keep the GST revenue neutral.
GST will reduce the prices of the fast moving, low margin and high volume goods, while the premium products will have a higher tax slab.
Hindustan Uniliver Limited deals in home care and personal wash, it will benefit from the low rate of tax on soap bars as well as detergents.
In contrast, Godrej might have a disadvantage due to the higher rate of tax. Hair creams and dyes are placed in the higher tax bracket which means that Godrej will have to see the impact of the 28% tax on its products.
Further, Marico acquired the male grooming brand, Beardo which sells hair and face care products, these products are placed under the 28% tax margin.
It is expected that the traders will reduce the stock as they wait for clarity on input tax credit.
It should also be noted that most raw materials that go into the FMCG products had a rate of 12.5% excise and VAT. Any rate of GST below 25% will allow the companies to pass on a part of the benefit to the customers in terms of the lower price of the goods.
Companies like Marico and ITC will face a higher incidence of tax, while companies like Hindustan Uniliver will have an advantage. ITC will see the tax on cigarettes going up. An overall analysis of the GST is a mix bag for the FMCG sector. Certain companies and goods will be benefitted and will have a reduction in the price while a range of companies will have to face the higher rate of tax and will see a decline in terms of stock and sales.
GST rates may affect the sales of premium brands and slow moving goods in the FMCG sector. Although, the companies will not see an immediate decline in the same, but it will be interesting to see the long term impact on the various industries that form a part of the sector.
- By Vandita Jadeja
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