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How Is GST Going to Impact Fast Moving Consumer Goods Firms

The new Goods and Services Tax (GST) regime will bring several benefits for the economy, and could particularly vitalise the fast-moving consumer goods (FMCG) industry.

Apart from driving supply chain efficiencies, bringing untaxed players into the tax net—a large section of the industry still operates in the unorganised segment— will level the playing field for the larger, established players in the industry.

The GST rate structure shows that not all FMCG companies stand to benefit from the new regime.

Products to be taxed at higher rates

  Detergents Baby foods Sanitary napkins Shampoo
GST Rate 28% 18% 18% 28%
Current Rate 23% 5%-12% 10%-11% 24%-25%
Companies impacted HUL, P7G, Jyothi Lab Nestle P7G Hygiene and Health Care HUL, P&G, Dabur, Himalaya

Source: Axis Capital

 

The FMCG companies, whose tax incidence has come down under the GST regime, are likely to pass it on to the consumers in the form of lower prices. “With the anti-profiteering clause in place, companies would be required to pass on the benefit of tax rates to the consumer in the form of lower prices,” says Sanjay Manyal, Analyst, ICICI Securities.

Lower prices could potentially support volume growth for certain products, particularly in the rural segment. “We believe it could result in a faster consumption shift from unbranded to branded products, spurring volume growth for FMCG companies. Simultaneously, it will also bring operational efficiency with rationalisation of supply chain by removing bottlenecks,” says Manyal. Analysts also point out that tax exemption provided to several critical products required for food processing— cereals, milk etc. — would benefit this industry.

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