Impact of Gst on Fmcg Sector

1927 Words Jul 28th, 2010 8 Pages
March 22nd
“Impact of GST on the Fast Moving Consumer Goods Sector”

Karthik Regunathan PGP25304 Rahul Tom Joseph PGP25317

Goods and Services Tax:
Of the many fiscal initiatives of the reinstated UPA government, the rolling out of the Goods and Services Tax promises to be the most significant initiative of Independent India. Initially envisaged to be in place by April 1, 2010 the GST would result in a major rationalization and simplification of the consumption tax structure at both the centre and state levels by replacing all central and state level indirect taxes such as value added tax (VAT), excise duty, service tax, entertainment tax among others bring relief to the common man.
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However, if food and other basic necessities were to be exempted or made taxable at a lower rate, then the standard rate for other goods and services could be pushed up to 18% or more. This could lead to disputes on classification of goods to the two rate categories. Leaving aside the issue of rates, many benefits are to be realized with respect to simplification of the supply chain which are summarized thus:
Impact of GST on the FMCG Supply Chain:
The introduction of GST is expected to build best-in-class capability in supply chain as well as people capability and enhance India’s cost leadership position by eliminating inefficiencies in supply chain and taxation: * Multiple Route-to-market models: Upto 35% reduction possible in time-to-market. * Simplification of Supply Chain: With the elimination of central sales tax, manufacturers could implement a centralized warehousing and distribution centre and need not set up distribution depots in individual states and make inter-state sales via consignment agents. * Elimination of Tax Cascading: Currently, FMCG dealers cannot claim a credit for the service tax paid on their inputs. Restrictions also apply on claiming credits for VAT on inputs other than goods for resale. * Reduction in Inventory Costs: Currently, the CENVAT is included in inventory costs, because of which the dealers costs increase. Under the new structure, the GST paid on inventory would be fully recoverable as input tax credit, reducing
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