GST & its Probable Impact on the FMCG Industry in India

Goods and Services Tax (GST) will be a game changing reform for Indian economy by developing a common Indian market and reducing the cascading effect of tax on the cost of goods and services. GST is a consumption based tax levied on sale, manufacturing and consumption on goods & services at a national level. Many taxes such as central excise duty, service tax, central surcharge and cess etc. levied by Central Government and VAT/sales tax, entertainment tax, octroi & entry tax, purchase tax, luxury tax, taxes on lottery etc. levied by State Governments have been subsumed under GST.

The fast moving consumer goods (FMCG) sector of India comprises more than 50 percent of the food and beverage industry and another 30 percent from personal and household care, thereby spanning the entire rural and urban parts of the country (Subramanian, 2015). Under the proposed GST regime, it is expected that it would result in a simpler tax regime, especially for industries like FMCG. Presently the peak tax costs for industry players amount to approximately 27% (i.e. Excise Duty of 12.5% and VAT ranging from 12% to 15%). Under the GST regime, it is proposed that the revenue neutral rate would be in the range of 16% to 19%, thereby resulting in significant benefit for the sector.