Skip to main content

Post Tax Rate Cut FMCG Firms Set to Reduce Prices

Post Tax Rate Cut FMCG Firms Set to Reduce Prices
Prices of shampoos, chocolates, nutrition drinks and condensed milk are set to drop 5-15% after the GST Council eased them out of higher tax slabs. Companies such as Hindustan Unilever, Dabur, Amul, GlaxoSmithKline, Procter & Gamble, Nestle and Perfetti Van Melle said they have either decided to reduce prices or are planning to do so after the GST Council cut tax on several consumer goods to 18% from 28%. They, in fact, are also bound by the anti-profiteering clause under the GST law to pass on any benefit from lower tax incidence to consumers.
“We will drop prices at least by 5% on our shampoo range,” Dabur chief executive Sunil Duggal said. The country’s largest dairy firm, Amul, said it would slash prices of condensed milk and chocolates by 5-10% with immediate effect, while GlaxoSmithKline Consumer said it would cut the price of popular chocolate drink Horlicks in line with the new rate.
Hindustan Unilever said it was calibrating the exact price reduction. The company had said last month that it would immediately pass on any tax benefits to consumers. With many of its segments now under 18% tax bracket, compared with 28% previously, analysts expect the maker of Dove soap and Rin detergent to cut the prices of its skin creams and increase grammage of laundry brands by as early as next week.
However, the companies may face impediments while passing on benefits to consumers, as some retailers have threatened they would not slash prices unless producers protected their margins and took back old stock before they implemented price cuts, said industry executives.
Negotiations between the FMCG majors and the retailers have already begun and will take at least a week to reach a conclusion, they said. Tax experts said the companies must settle these issues at the earliest as the law makes it compulsory for them to pass on the benefits.Deloitte India partner MS Mani said manufacturers would need to strategise on passing on the GST reduction, depending on the extent of the stock with each intermediary in the supply chain and other factors.
Companies Working on Solution
“In the absence of a clear methodology prescribed in the law for ascertaining the extent of the benefit that needs to be passed on, each business may need to separately assess the same,” he said
"Most companies will now be cautious of anti-profiteering provisions and are likely to reduce the prices. For the stock in the market, reduction may take some time,” said Pratik Jain, national leader, indirect tax, PwC India.Companies, too, acknowledged this as a hurdle to lower prices, and said they were working on the solutions
A Nestle India spokesperson said the company would pass on the tax benefit to consumers, but “there will be a transition time before new price stocks are available in the market”.
SK Tijarawala, a spokesperson for Patanjali, said the Ayurveda products maker has already started the process to reduce prices, but there were multiple channels and processes to be undertaken before the new prices reach consumers. “We are working on the plans,” he said.
“Technically, the retailers have an option to either reduce the price right away or a bit later. However, since the law states that no one can profit from GST, the entire profit made from the date of reduction would eventually need to be passed on to customers,” said PwC India’s Jain.
Sushil Kumar Bajpai, president at RSPL that sells ‘Ghari’, India’s largest detergent brand, said it would offer “some kind of promotion” to ensure that the benefit of lower tax reached the consumer. “We will mostly increase grammage in new products which will indirectly reflect price cut of about 10% on an average. For the existing stock already in the market, we could offer some kind of promotion,” he said.
The Economic Times, New Delhi, 13 th November 2017


Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…