Skip to main content

FMCG companies brace for new set of GST challenges

FMCG companies brace for new set of GST challenges
It is the sixth month since the country´s biggest tax reform after independence was implemented.And just when consumer goods companies were managing to come over the initial hiccups emanating from the goods and services tax (GST), new pain points have emerged
The biggest is the issue of antiprofiteering norms.Simply put, these are the rules to prevent companies from making excessive profits from the GST. While anti-profiteering provisions were cleared in June, just before the GST rollout, no clear guidelines have been specified to date on how the calculation should be done.
Companies that Business Standard spoke to say they are awaiting a proper frame work to determine what constitutes profiteering and what doesn´t.The reason they said they would wait is because there is growing speculation of a likely product specific approach to anti-profiteering as opposed to a company specific approach
In other words, the anti-profiteering body, set up last week under bureaucrat BN Sharma, will look at the input tax credit flowing into a product and the commensurate reduction in total tax incidence on that product to determine whether GST benefits have been passed on to consumers, sources said.
Companies as well as indirect tax experts say this is cumbersome since most firms typically have a number of stock keeping units in their portfolio, whose price fluctuates from time to time depending on the season, promotion or competitive scenario.

“Anti-profiteering provisions provide that ´any reduction in rate of tax or any supply of goods or services or the benefit of input tax credit shall be passed on by way of commensurate reduction in prices´.But the question is what is the base price that companies should take when seeking to apply this reduction,” Sachin Menon, partner and head, indirect tax, KPMG India, says.

This point is endorsed by Nihal Kothari, executive director, Khaitan &Co. He says, “The issue is how the benefit of input tax credit should be passed to consumers.While the GST rate reduction on products is fairly easy to pass, that is not the case with input tax credit.

GST, as we know, is a pass through tax, where one registered entity is dealing with the other through the value chain.It is therefore easy to determine input tax credit at company level rather than product level.
If a product specific approach to anti-profiteering is introduced, then granularity of information will increase, complicating matters.” Industry sources say the antiprofiteering body may come up with specific guidelines by the middle of this month to help iron out differences.
It is important to note that consumer goods companies have already passed on the last rate reduction announced on November 10 on products such as shampoos, detergents, air freshners and deodorants.The GST on 177 massuse items was slashed to 18 per cent from 28 per on that day, with companies effectinga710 per cent price cut subsequently.

“I see the current phase asaperiod of transition," says Sunil Kataria, business head, India &SAARC, Godrej Consumer.“The recent price cuts have to reach the consumer.While we have covered distributor stocks, the retail trade is vast and for the pricing change to reach the last mile, it will take time.
We are advertising price cuts to create awareness.” Sunil Duggal, chief executive officer, Dabur India, says he seesabigger challenge in managing existing inventory, which has the old price.“Though we are distributing stickers to trade, for us to physically affix stickers on existing stock is difficult.

That is a challenge,” he says.A part from advertising price changes prominently, companies are also engaging with retail trade to ensure the cuts are passed on effectively.Distributors working with companies have also been asked to step in and monitor existing as well as new stock.
The Business Standard, New Delhi, 5th December 2017


Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

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…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …