Fast Moving Consumer Goods (FMCG) refer to products that sell quickly, in higher volumes, and have a short shelf life. They are generally cheap. FMCG include non-durable items like soft drinks, toiletries, over the counter. In the GST regime, one of the biggest change is the seamless flow of credit. The FMCG industry is one of the major benefiters of GST. Here is the impact of GST on FMCG Industry.
GST Impact on FMCG Industry
Reduced Logistics Cost:
It was anticipated that the logistics cost which is currently 2-7% would drop by 1.5%. Cost reduction would also come in the terms of transportation and storage of goods. The government dismantled check posts and toll nakas on the borders of many states on the midnight of 30th June. GST also replaced the different laws in different states, following which the paper work has also reduced. Lesser check points and minimal paperwork has already reduced transit time. Also, the lead time of truck routes has improved by 25-27%.
The proposed e-way bill will ensure that there are lesser delays at check points.
Most companies consolidated their warehouses due to increased compliance burden. Before GST implementation, companies rented warehouses in different states because of the different tax rates. But now, companies have to get registration and pay tax in the state where their warehouse is located. Now, companies have to re-evaluate the supply chain so as to maximize gains under GST.
Under GST, intra-state stock transfers are taxable only when the entity has more than one registration in the state. However, stock transfers outside the state will attract GST. The value of goods will be the transaction value (i.e. the price that is paid or is payable for supply of goods).
GST valuation rules also state that if the transaction value is not available, then the value for the good or service would be considered as the transaction value. This doesn’t have any effect on the end consumer. But for the businesses it will lead to working capital blockage. Meaning that money which companies could use elsewhere will be used for paying taxes on stock transfer.
Tax Holidays & Exemptions:
Nestle, ITC, and many other companies have their warehouses set up in places like Himachal Pradesh. Such places often enjoy tax holidays or tax exemptions. It is beneficial for the companies to set up their warehouses here, for obvious reasons.
Industries in the north eastern and Himalayan states will continue to get exemption till March 2027. This could be harmful to the traders based out of other states like Punjab.
Excise Duty Exemptions:
The Department of Industrial Policy and Promotion has also revealed a scheme that replaces the earlier excise-free zones. Industrial units in these areas will need to pay duties first and claim a refund later. This scheme offers a 58% Central GST reimbursement. Earlier, companies would get a 100% refund or exemption of the excise-duty paid in cash. The refund will be available only on the portion of tax paid in cash after all the collected ITC has been utilized to pay Central and integrated GST.
The impact of GST on the FMCG Industry seems more gloomy than positive or negative depending on the state in which a company operates. The silver lining for the FMCG Industry is the E-way Bill and no check posts. will obviously reduce the transit time and corruption. This will give a boost to the logistics options. Read about the impact of GST on consumers of the FMCG Industry here.