Impact of GST on Fast-Moving Consumer Goods (FMCG) Sector

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With about 3.8 million visitors daily to the GST Registration site, the Food and Beverage category is one of the fastest-growing sections, with a 28% increase in online sales from the previous year. In this article, we will discuss on Impact of GST on Fast-Moving Consumer Goods (FMCG) Sector.

About FMCG Sector

Fast-moving consumer goods i.e. FMCG are sold in most grocery stores, convenience stores, retailers, vending machines, direct mail catalogs, door-to-door canvassers, and celebrity-endorsed mailings. Fast-moving consumer goods account for roughly 18 percent of the total US personal consumption expenditures.

The FMCG industry comprises three categories: Food and Beverages, Household, Personal, and Health Care. The Food and Beverages category represents 19% of the entire economy, even as it sees a steady increase in online sales. The largest segment in this category is groceries that account for just over 90%, while the rest consists of items like poultry & eggs (meat-processing) and dairy products.

Impact of GST on Fast-Moving Consumer Goods

The Impact of GST on Fast-Moving Consumer Goods products like toothpaste, hair oil, and soaps has decreased from 22-24% to 18%. Colgate-Palmolive, HUL, P&G, and other companies benefit from this. These companies saw a sales growth of 35% in the financial year 2014-15. Their tax bill went down as their income increased.

The price fluctuation on FMCG Goods

The price of FMCG goods is inclusive of applicable taxes, including the GST. Any increase in taxes on any supply of goods and services shall be passed on to the recipient through a proportionate rise in price. Similarly, if the tax rate applicable to any collection of goods or services is reduced, such reduction shall also be passed to the recipient.

The government introduced amendments informed by consultations with stakeholders—to the Central Goods and Services Tax Act 2017 to ensure that all tax benefits accrued are passed on to consumers under GST Return Filing. As a result, the Value for Duty will directly impact MRP in the form of the number of digits, said a Finance Ministry official.

How does GST have an impact on the supply chain?

Since FMCGs do not have inventory ownership, all products can be distributed through intermediaries. In such cases, all indirect taxes will be borne on the end customers. A significant point of concern for FMCG companies is the cash flow due to multiple taxations at various levels along the supply chain.

This directly impacted their supply chain decisions as they could not accurately forecast how much product could be sold in a month. The government of India addressed this significant challenge by implementing a single largest indirect tax project called “Goods & Services Tax (GST).”

Since the new GST Registration was applied uniformly across the country, it was no longer necessary to charge a company tax on products. With this in mind, all indirect taxes were simplified into a single tax. Tax Implications of the Uniform Tax System in India (PDF).

The GST regime has brought a substantial change to the way FMCGs are taxed. Most of the exclusions available to FMCG companies have been removed, but states’ Budgetary Support Scheme for the new indirect taxes have eased some of the burdens.

The new GST regime has positively impacted the Fast-Moving Consumer Goods market in India. The overall tax burden has been lowered. Under GST, 18% tax would be levied on products sold online by foreign players. However, online retailers based in India can continue to operate with a 0% levy on them.

GST on Export of Goods & Services

If you want any other guidance related to GST Registration or GST Return filing, please feel free to talk to our business advisors at 8881-069-069.

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No GST on examination fee charged by Central/States/NBE

GST on Transport: GST Rates for Transport Sector


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