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The impact of GST on FMCG sector

The Goods and Services Tax (GST) is nothing less than a revolution in Indian economy. The GST is proposed as the replacement for almost all the indirect taxes levied by the Central and State Governments with a single and uniform taxation. According to the latest gst news, many experts believe that after the implementation of the new tax structure from 1st of July 2017, the there will be an instant growth of up to 2% in the GDP of the country. GST also comes with a number of other benefits like simplification of indirect taxes, better compliance and improved tax governance.

GST is all set to subsume 17 indirect taxes including central excise duty, VAT, services tax, luxury tax, additional customs duty, surcharges, state-level value added tax and octroi. Under the new tax regime, the goods and services will be levied at multiple tax rates starting from 5% to 28%. As per the latest gst news, GST Council has come up with a four-tier GST tax structure of 5%, 12%, 18% and 28% where the lowest tax slab of 5% would be levied on the items of common use while 12% and 18% will be levied on other goods and services. This will also include fast-moving consumer goods or goods from FMCG sector.

Impact on FMCG Sector

One of the reasons GST is being rolled out is to enliven and boost all the sectors of the Indian trade; FMCG is no exception. The introduction of GST is expected to energize the fast-moving consumer goods industry. As per gst news, one major fillip to the FMCG sector may come from reduction of logistics expenses. Currently, the distribution costs account for 2 to 7 % of the total cost of FMCG products. This is expected to drop to 1.5% after GST implementation.

Latest gst news also points out that the rates decided for the major FMCG products under the GST regime are generally lower compared to the current tax rates. Under the new tax structure many products of common use including hair oil, toothpaste and soaps etc will be taxed at 18 per cent, much below the current effective tax rates in many states.

However, the picture is not all rosy. As per gst news coming in, a few products that will be charged a higher rate compared to their present tax structure.  For example, washing powder will have to bear a 28% of GST as compared to the current 23% tax. Same goes for shampoo, sanitary napkins, paints, skin care products like cream, hair color, and moisturizers, baby food, coffee, chocolate etc  which will be charged with 18% to 28%, which is higher than the current 10-20% tax rate applicable.

As per the latest gst news, more than 80% products from FMCG sector mostly fall into the tax bracket of 18% except the aerated drinks and other luxury goods which are charged at 28% to 40%. This benefit of reduced taxes might be carried forward to the consumers in form of lower MRP. This may in turn create a higher demand. Another boos for the sector is the exemption of many important inputs for the food processing industry including jaggery, cereals and milk etc.

A deeper dive into the gst news coming from reliable sources shows that the impact of GST will be neutral to positive for many FMCG cos. However, further clarifications on service tax and excise exemptions will present a clearer picture of the full impact.

Vikas Agarwal
the authorVikas Agarwal
Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering. He is the Founder and CEO of - an investment advisory website. He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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