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Impact of GST on FMCG Sector in India

Article in Research Journal of Humanities and Social Sciences · January 2019

DOI: 10.5958/2321-5828.2019.00005.6

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 Research Journal of Humanities and Social Sciences. 10(1): January - March, 2019

ISSN 0975-6795 (Print) Available online at

2321-5828 (Online) www.anvpublication.org
DOI: 10.5958/2321-5828.2019.00005.6
Research Journal of
Vol. 10 |Issue-01|
January - March 2019 Humanities and Social Sciences
Home page www.rjhssonline.com

RESEARCH ARTICLE

Impact of GST on FMCG Sector in India

Mr. Adeel Hussain Alie1, Dr. Javed Iqbal2, Mr. Sarfraz Ahmed3, Mr. Ajaz Ahmad Bhat4
1
Research Scholar, School of Management Studies, BGSB University, Rajouri, J&K-185234
2
Assistant Professor, School of Management Studies, BGSB University, Rajouri, J&K-185234
3
Research Scholar, Department of Economics, BGSB University, Rajouri, J&K-185234
4
Practicing Accountant, Srinagar, Kashmir, J&K-190001.
*Corresponding Author Email: [email protected]

ABSTRACT:
Goods and services tax (GST) is the biggest tax reform in Indian tax system. It includes excise tax, service tax,
central sales tax, luxury tax, lottery tax, entertainment tax, octroi, state surcharge, and other surcharge on supply
of goods and services. The GST replaced various multiple indirect taxes which were imposed on unlike items of
goods and services. The GST helped in increasing central government revenue from past nine months, since
GST has been introduced (1st of July, 2017) and solved the problem of “cascading effect” of tax. GST has
emerged as “transparent taxation system” in the indirect taxation. Although GST will be more effective in
coming future but presently it may not be free from constraints. The research paper will focus on framework of
GST as well as Impact of GST on Fast Moving Consumer Goods (FMCG) Sector in India. After implementation
of GST, FMCG Sector improved slightly as GST eliminated multiple-tax system.

KEYWORDS: GST, FMCG, Goods and Services, Government Revenue, Tax.

INTRODUCTION: It must be noted that in the last few years the FMCG
The fourth largest sector in the Indian economy is Fast market has grown at a faster pace in rural India
Moving Consumer Goods (FMCG) Sector. Almost 50% compared with urban India. The FMCG retail market in
FMCG sales comes from food and beverages and 30% India is estimated to reach US$ 1.1 Trillion by 2020
sales from household and personal care. In today’s era of from US$ 672 Billion in 2016 with expectation to grow
globalization, market is full of FMCG companies and at 20-25% per annum which will increase the revenue of
they try to sell their products by creating brand image in FMCG sector. In 2016-17 revenue for FMCG companies
the minds of customers. Fast moving consumer goods was US$ 49 billion and is expected to grow 9-9.5% in
are also known as consumer packaged goods. Growing financial year 2018, which will be $ 54 (app.) billions, if
online shopping habits among Indian youth and change converted to INR, the market size will be Rs. 5400
in their lifestyles is the main reason of growth for the crores.
sector. The urban population is the major contributor to
the overall revenue generation by the FMCG Sector in OBJECTIVES OF STUDY:
India and recorded a market size of around US$ 29.4 1 To study the frame work of GST.
Billion in 2016-2017. 2 To study the impact of GST on FMCG Sector.

RESEARCH METHODOLOGY:
The study is based on secondary data collected from
Received on 22.10.2018 Modified on 24.11.2018
various books, blogs, articles published by experts in the
Accepted on 14.12.2018 ©AandV Publications All right reserved
Res. J. Humanities and Social Sciences. 2019; 10(1):24-28. national and international journals.
DOI: 10.5958/2321-5828.2019.00005.6

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 Research Journal of Humanities and Social Sciences. 10(1): January - March, 2019

GST at a glance: Origin of GST in India

What does GST mean?: DATE EVENT
GST Stands on Goods and Service tax. It is a single and 16/07/2004 Kelkar task force committee strongly recommended
the implementation of GST on national basis.
consumption based tax on the supply of goods and 28/02/2006 Former finance minister P. Chindambaram
services. It offers continuous chain of input tax credit announced that GST would be rolled out, from 1st of
from producer’s level up to retailer’s level. Therefore it April 2010.
is the final consumer who bears the GST tax, charged by 19/12/2014 NDA Government leaded the Constitution (122nd
Amendment) Bill, 2014 on GST in the Parliament.
the last dealer.GST replaced all indirect taxes levied by
06/05/2015 Lok Sabha advanced the Amendment bill 2014.
central and state governments. 03/08/ 2016 Raja Sabha passed the Amendment bill 2014.
08/09/2016 Constitution (122nd Amendment) bill, 2014 assented
Why GST in India? by honorable President Parnab Mukherjee
Short Comings/Limitations in the value addition tax 27/03/2017 The Central GST legislations (CGST Bill, IGST
Bill, UTGST Bill, 2017 and GST “Compensation to
regime opened the way for GST. Following are the States” Bill, 2017) were put forwarded in Lok
limitations of value addition tax regime. Sabha.
• Multiplicity of taxes. 29/03/2017 Lok Sabha passed the central GST legislations.
• Cascading/double taxation. 12/04/2017 The central GST legislations assented by honorable
President.
• Unavailability of credit of vat against excise/service 01/07/2017 GST was implemented to whole India.
tax and vice versa.
• Different states have different VAT rates and GST rates
regulations. It was decided in the 23rd meeting of GST Council, to
keep the highest 28% tax slab for opulence and sinful
Taxes to be included and not included in GST items. Tax rate of 177 items have been shifted to 18%
Central State Taxes Taxes not included
TaxesIncluded in Included in GST in GST
tax slab. Government have classified/categorized items
GST in six major slabs 0%,0.25%,5%,12% and 28%.
• Central Excise Tax • Value Addition • Basic Customs
• Additional Excise Tax Duty Structure of GST in India:
Duties Tax • Tax on • Human A. Dual GST
• Excise Duty under Entertainment Consumption
Medicinal & Toilet • Central Sales Alcohol
Canada became the first country in the world which
Preparation Act Tax • Property Tax adopted the dual GST model. Due to federal structure of
1955 • Octroi Tax and • Stamp Duty Tax India, it also adopted the dual GST model. Under dual
• Service Tax Entry Tax • Toll Tax model, tax is charged concurrently/jointly by center and
• Central Sales Tax • Tax on • Electricity Duty state governments on supply of both goods and services.
• Additional Purchases • Diesel /Petrol/
Customs Tax • Advertisement Natural Gas /
• Special Additional Tax Aviation Fuel. B. The constituents of GST
Customs Tax • Tax on . • CGST: Central Goods and Service tax is imposed as
• Central Cess Tax Gambling well as collected by central government.
• Tax on Lottery
and Betting • SGST: State Goods and Service tax is imposed and
also collected by state governments.
• IGST: Integrated Goods and Service tax is imposed
by center and state governments on all inter-state
supplies.
Analysis and:
Interpretation: C. HSN and SAC codes are used:
GST is considered a path breaking indirect tax reform HSN (Harmonized system of Nomenclature) code is
since Independence. IMF recommended the GST in used to classify the goods and SAC (services accounting
order to improve the efficiency of tax system and code) is used to classify service under the GST.
increase the revenue of government. In 1954 France
became the first country in the world which implemented D. Legislative framework:
GST. Almost 150 countries have implemented GST Under GST singe legisture is to be used. To impose
throughout the globe. A committee headed by Asim CGST, CGST Act is to be used. Similiarly for levy of
Dasgupta, then Finance Minister of West Bengal set up SGST, SGST Act is to be used even though every state
by NDA government in the year 2000, started discussion has its own SGST legislations. But the main features of
on GST in India. law like chargeability, definition of taxable event and
taxable person, classification and valuation of goods and
services etc. are same in all the SGST Acts. This saves
the essence of dual GST.
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 Research Journal of Humanities and Social Sciences. 10(1): January - March, 2019

E. Utilization of input tax credit (ITC): Simple and ease tax structure: GST made indirect tax so
ITC of CGST and SGST/UTGST is available throughout simple and ease. It reduces the various compliances as
the supply chain, but cross setoff of credit of CGST and against present system.
SGST/UTGST is restricted, however IGST Credit can be
utilized for the payment of CGST/SGST/UTGST and Disadvantages of GST:
vice versa. Increase in prices of essential goods: Under GST, tax
rate of some essential goods like cereals increased which
F. Registration: increased their prices too. Service tax also increased
Every Supplier/Dealer whose “aggregate turnover” in a from 14.5% to 18% which made services more costly.
financial year is more than Rs. 20 lakhs, or 10 lakhs if
the supplier is carrying-out business in the special Online filling of returns:
category states (Jammu and Kashmir, Arunachal online taxation is both advantageous as well as
Pradesh, Tripura, Manipur, Mizoram, Himachal Pradesh, disadvantageous. Various returns like GSTR1, GSTR2,
Uttarakhand, Assam, Nagaland, Meghalaya and Sikkim) and GSTR-3B etc. have to be filled online by a taxpayer
is mandatorily to register under Goods and Services tax. on monthly/quarterly basis. Some business owners find it
difficult to processes themselves, and approaches to third
G. Composition scheme: party (CA/GST Practitioner) which increases their
Composition scheme is for small businesses to get them overall cost.
relief from monotonous GST formalities. A taxpayer
whose turnover is less than Rs. 1.5 crores can opt for No GST on petrol/diesel:
composition scheme. But for North Eastern States and Government doesn’t bring petrol, diesel and natural gas
Himachal Pradesh limit is Rs.75 lakhs. Apart from under GST regime. There is very high tax rate on petrol;
composition scheme certain goods have Nil or 0% GST if it would be brought under GST its price considerably
rate to benefit the general public. will fall down.

H. GST common portal: Costly banking and financial related services: There is
GST portal is setup by the government for the considerably high tax rate on banking, insurance and
development of all GST related activities. Activities like financial related services as compare to previous regime.
registration, return filling, payment of taxes, application On one side government promotes digital India dream
for refund, analysis of taxpayer’s profile, claim of input but on other side makes such services costly.
tax credit etc. GST website is controlled by Goods and
Services Network (GSTN). Crash of GST Network:
GST network crushes several times especially during last
I. Compensation cess: date of filling of returns. Recently on the debut day of e-
Compensation cess is a special kind of tax levied as way bill GST network crushes. Crush of network creates
compensation in addition to the GST tax on the value of much trouble for tax payers.
both inter and intra supply of goods or services or both.
It is compensation to the states for loss of revenue due to Impact of GST on FMCG Sector:
implantation of GST, especially for those states whose Under pre GST regime, maximum FMCG products were
revenue mainly comes from the export of goods/services. taxed at rates ranging from 22 percent to 24 percent for
It is imposed on specified luxury items or demerit goods example, detergents were taxed at the rate of 23 percent,
such as tobacco, pan masala, motor cars etc. for 5 years. shampoos and beauty preparations were taxed at the rate
of 24 percent to 25 percent, tax on sanitary towels and
Advantages of GST: napkins was about 10 percent to 11 percent, tax on some
No cascading effect: daily use FMCG products like paneer, ghee, cheese,
GST is free from cascading tax which reduces in overall butter and milk was about 3 to 5 percent.
cost of goods and services, and that leads to GDP
growth. Under the GST regime, FMCG products are taxed under
0%, 5%, 12%, 18% and 28%. However if you deeply
Sustainable growth: GST made indirect tax system examine the impact of GST on individual products, we
simple and ease, which is very helpful in attracting can see that tax rates of some products have increased,
foreign investment. like tax on shampoo (Now taxed at 28%), detergents
(Now taxed at 28%), sanitary towels (Now taxed at 12%)
Reduction in tax evasion: Under GST everything is which is higher than before. Under GST tax on
tracked online. Reconciliation can be done online toothpaste, hair oil, and soaps is deducted from 22
between the parties which decreases the chance of tax percent to 18 percent. Whereas some daily use products
evasion. like milk, eggs, fresh vegetable, wheat, rice, etc. are tax
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 Research Journal of Humanities and Social Sciences. 10(1): January - March, 2019

free. Big companies of this industry like Hindustan Wholesalers as manufactures of FMCG hold up their
uniliver, patanjali, and ITC welcomed GST with open payments due to uncertainty about the tax liability and
arms. However few firms of this sector are negatively the tax sett-off for the supplied goods and services.
affected by the GST tax rate, which still is changing.
Advancement in effective tax rates:
Logistics cost: Products like aerated and beverages now attract 28%
Distribution and Transportation plays a vital role in GST in addition to 12% cess. It is because of such
FMCG industry. Distribution cost of FMCG sector in pre advancement in effective tax rates prices of such goods
GST regime constituted 2 to 7 percent which is dropped increased in the market. Under GST regime, effective tax
to 1.5 percent in GST regime. The FMCG companies are rate of 40% is opposed to policy of maintaining equality
saving a considerable amount in terms of logistic with the pre GST weighted average tax which was below
expenses. Due to true and fair supply chain management, 40, stated by leading beverage companies.
payment of tax, availability of input credit, CST
elimination resulted in reduction of overall transportation FMCG distributors:
and distribution cost. Reduction in cost and taxes lead to FMCG distributors didn’t get much affected by the
cheaper consumer goods. implementation of GST. A distributor gets his Fixed
Margin on purchases from company. Moreover
Warehousing cost: distributor is unable to evade tax under GST as the
Recent study of CRISIL suggested that the warehousing complete value chain is tracked online.
cost for FMCG products is likely to reduce by 25-50
percent due to implementation of GST. Before the GST Common man (Consumer)
regime companies had to setup warehouses in those It is a consumer who bears the burden of indirect tax.
states where the effective tax rate were minimum Overall GST put a mixed impact on common man. Due
irrespective of distance, but under GST companies can to increase in inflation rate from 4% to 8% on many food
maintain their warehouses wherever they like. Reduction items included grains and cereals affected middle class
in warehousing cost also makes commodities cheaper. and below property line (BPL) class badly, apart from it
common man is looted in the market on the name of
Input tax credit: GST.
Reconciliation facility of inward and outward supplies is
available on the GST network, In case of mismatch CONCLUSION:
between the details of “outward supplies” (Sales) Implementation of GST throughout India (included
uploaded by the supplier in GSTR1 and the inward Jammu and Kashmir) is the biggest change in India. It is
supplies (Purchases) uploaded by the recipient an outstanding step for a comprehensive indirect tax
(Purchaser) in GSTR2. Such mismatch is to be reform in India. Implementation of GST has put mixed
communicated to the purchaser. If the mismatch is not impact on FMCG sector. Those FMCG companies
corrected by the vendor within prescribed time period, whose tax incidence lowered, like Dabur, HUL, ITC
the purchaser (Buyer) will be accountable to pay the have started to pass on the effect in the form of low
differential GST amount along with the interest. This prices. Changes in GST rates on regular intervals is very
provision of GST lays down the liability for non- fruitful for some firms but not for other firms in the
compliance on the purchasers, i.e. the FMCG companies, FMCG industry. GST may become game changer in the
as against their vendors. long run for the FMCG sector and may also have deep
impact on Indian economy as well. But the short term
No input credit on free samples: impact reveals that GST has failed in bringing down
In the FMCG industry promotional schemes like Buy 1 overall cost of commodities, interestingly cost of some
Get 1 Free are very common. Under the previous regime products has increased much more than cost of pre GST
no VAT had to be charged on free samples, however regime.
according to sec 17 (5) of the CGST Act, an input tax
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 Research Journal of Humanities and Social Sciences. 10(1): January - March, 2019

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Webography
1. www.cleartax.com
2. www.ibef.org
3. www.gsthelplineindia.com

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