The new tax regime is expected to boost exports with reduced costs of goods and services
Dinesh Kaushal | October 24, 2016
The Goods and Services Tax (GST) will be a game-changing reform for the Indian economy, creating a common market and reducing the cascading effects of tax on the cost of goods and services. It will impact the tax structure, tax incidence, tax computation, tax payment, compliance, credit utilisation and reporting, leading to a complete overhaul of the current indirect tax system.
The fast-moving consumer good (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. It is estimated that the sector contributes a significant $6.5 billion in direct and indirect taxes.
Five major impacts of GST on the FMCG industry:
Looking at these benefits, it is safe to say that GST has been hailed as the most powerful tax reform that India has seen as it aims to do away with multiple tax regimes on goods and services and bring them under one rate. GST will alter the present system of production-based taxation to a consumption-based one. While manufactured consumer goods will become cheaper as the incidence of excise duty and VAT will come down from 25-26 percent at present, the cost of services would by and large go up from the present 15 percent level. The sheer efficiency of GST and its design is such that the credits do not stick to the business and are passed on in the value chain, so there will be benefits even from an efficiency perspective for a FMCG industry. Furthermore, the FMCG industry today has a network design which is also entirely driven by the concept of stock transfers and then sale through depots and hence the FMCG sector can see this as a boon to the industry.
The government is committed to replace all the indirect taxes levied on goods and services by the centre and states and to implement GST from April 2017. The constitutional amendment bill for GST has been approved by the president after its passage in parliament (Rajya Sabha on August 3 and Lok Sabha on August 8) and ratification by more than 50 percent of state legislatures.
Kaushal is chief financial officer, Vi-John Group.
(The article appears in the October 16-31, 2016 issue)
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