FMCG (Fast-moving consumer goods) is not only the fast-moving but also the fastest-growing sector of the Indian economy. Valued at $ 13.1 billion, FMCG is the fourth largest sector in the Indian market. According to an EY India report, Indian FMCG will be the fifth-largest consumer products market by 2025, and it will touch a humongous figure of $262 billion.
However, the sector is not entirely devoid of challenges. Dynamic consumer preferences, severe competition, and price wars pose a considerable threat to the FMCG players. There are a number of food and product safety regulations that the industry has to adhere to. Large dependency on logistics and the supply chain also creates a lot of barriers for the sector.
However, with the introduction of GST (Goods and Services Tax), the government has made sincere efforts to ease the difficulties of the FMCG industry to a large extent. Under the previous tax regime, the industry was burdened with numerous taxes such as excise duty, VAT, sales tax, etc., and hefty tax rates ranging from 24-28%. The process was extremely tedious, time-consuming, and costly. The additional costs contributed to the already inflated prices of consumer products.
With GST’s implementation, a single tax replaced many tax heads and significantly reduced the tax rates. The reduction in taxes is passed on to the retail consumer by way of reduced prices of end-products. Earlier, the manufacturers had to have a warehouse in different states to abide by each State’s tax rule. Under GST, this is no longer required as GST is a destination-based tax, i.e., a tax that is paid at the place where sales in made.
GST Tax Slabs
- GST law prescribes tax rates in the range of 0-28% for different product categories.
- Milk and milk products such as cream, lassi, curd; cereals without a registered brand name; salt, vegetables, fruits, and some dry fruits, eggs, sanitary napkins, etc. are exempt from GST.
- Frozen vegetables, honey, branded paneer, and fried Areca nuts are levied GST at the rate of 5%.
- Butter, ghee, cheese, dry fruits, bread, processed food, etc. are charged 12% GST.
- Sugar-based confectionary items, hair oil, certain toiletries, LPG stoves, etc. are under the 18% GST tax slab.
- Caffeinated beverages, aerated drinks, foods containing added sugar or sweetening agents, etc. fall in the 28% tax rate slab.
- MRP (Maximum Retail Price) includes all costs and taxes of the product. Retailers are not allowed to charge GST on the MRP. Any reduction in GST should also be necessarily passed on to the end consumer by reducing the prices.’
GST for Wholesalers, Distributors, and Retailers
GST has completely transformed the Indian market and brought almost all the businesses under the purview of the new law. Under the current GST regime, wholesalers, distributors, and retailers with turnover exceeding Rs 40 lakhs are required to register for GST. The limit is set at Rs 20 lakhs in some North Eastern and special category states. The registration is done electronically through the GST portal.
Registered businesses are allotted a 15-digit unique GSTIN (GST Identification Number). It is essential to obtain a GSTIN for the business to claim the Input Tax Credit (ITC) on your purchases. The benefit of ITC is visible across the supply chain when all the businesses come under the GST umbrella. A simple GST search on the GST portal gives you the GSTIN of any registered business.
Registered businesses are mandated to file monthly and annual returns in the prescribed formats. The process, however, is made hassle-free through the GST portal. Default in GST filing is considered an offense and can result in heavy penalties.
An important aspect of GST is to keep track of every single transaction that comes under the purview of tax. Business owners are required to record all the sales and purchases on GST-compliant billing software. Such a record makes it easier to consolidate transactions at the end of the month and streamline the process of filing monthly returns.
GST is considered a big step in arresting tax evasion by business owners. At the same time, it also offers some important benefits to businesses. A simplified and transparent tax mechanism has replaced the burdensome taxation system. And benefits of cost are distributed across the supply chain resulting in better balance sheets.