Mixed bag for FMCG

Mass-market home, personal care and food products stand to gain

Fast moving consumer goods companies have begun asssessing the impact of the rate structure declared on Thursday under the Goods & Services Tax (GST). Finance Minister Arun Jaitley, who heads the GST Council, said a four-tier structure of 5%, 12%, 18% and 28% would be in place as part of the new tax regime that will kick in next year.

While mass-market home, personal care and food products are expected to fall in the 5%  bracket, premium products are expected to fall in the 28 per cent bracket, which could come as dampener for companies, who've been premiumising their portfolios.

"The rates are on expected lines except for 28 per cent, which came as a surprise. Most were anticipating 26 per cent," Sunil Duggal, CEO, Dabur India, said.

The 12 and 18 per cent tax rates have been declared as standard rates, which could see mid-priced products across the FMCG spectrum from soaps to detergents, hair oils to toothpastes fall in these brackets. Foodgrains and essential items such as milk will not attract a duty in the new regime, tax experts said.

However, liquid detergents, hair conditioners, body wash, hair color, premium chocolates and processed foods might all attract a 28 per cent duty. Aerated drinks and pan masala will also attract a 28 per cent duty with an additional cess. 

Rajdeep Datta Gupta, chief financial officer, PepsiCo India Region, said, "The GST Council discussions are on- going and we are awaiting further clarity. We make a range products – the majority of them are available at Rs 5, Rs 10, Rs 15, Rs 20 and are consumed by all socio-economic strata. Having said that the food processing industry is looking forward to rational tax rates for carbonated beverages, savouries, fruit juices in the GST regime.”

A statement from Coca-Cola India said the company was yet to study the full impact of today's announcement.  "As a full service beverage company, we manufacture and market beverages including juices, juice with fizz, dairy products, iced tea and carbonated beverages like soda. At this point we do not know which of these products are classified in which category," the statement said.

But barring products in the demerit category (aerated drinks, pan masala, tobacco), most tax experts and CEOs say that price hikes will be minimal in FMCG. "I am not expecting dramatic price hikes in FMCG, since most of the rates are in line with forecasts," said Harsh Mariwala, chairman, Marico.

Harishanker Subramaniam, national leader, indirect tax, Ernst & Young, said, "The finalisation of GST rate structure is a welcome move and brings us a step closer to GST implementation. The real action will now shift to which rate basket will goods and services fall and there lies the real game."