“Impact of GST on the Fast Moving Consumer Goods Sector” SCM PROJECT
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. GST: An Executive Summary
GST is the most ambitious indirect tax reform in India ever attempted and aims to create one “borderless domestic market”. It will tax consumption as against “production” which is the current norm. A uniform rate will be imposed on a product only once, at the point of its supply, thus reducing the cost for consumers. Key benefits: If GST is implemented without many exemptions and with a single rate, the following benefits will accrue: * Macro: Successful pan-India implementation will add 1-1.7 % to the GDP and boost the tax/GDP ratio. * Micro: Incidence of tax will come down in case of manufactured goods. However, in case of services the incidence and coverage of tax may rise resulting in higher prices. * Industry: Volume growth will accrue as incidence of taxation is minimized. Also, supply chain efficiencies will accrue as there will be no need for multiple depots and warehouses. * Likely beneficiaries: Auto, FMCG, Logistics sectors
GST is not just VAT + Service tax, but an improvement over the previous VAT and disjointed services tax:
* Will remove cascading effect of taxes and include comprehensively more indirect Central taxes and integrate goods and services taxes for set-off relief, but also capture certain value addition in the distributive trade. * A continuous chain of set-off from the original producer’s point and service provider’s point up to the retailers level would be established which would eliminate the burden of all cascading effects, including the burden of CENVAT and service tax.
Current tax structure consists of a plethora of central and state levies…
The proposed structure wherein a host of taxes will be subsumed in GST…
A dual GST comprising Central GST (CGST) and State GST (SGST) to operate concurrently on supply of goods and services for consideration.
FMCG in India:
Driven by growing consumption in rural and semi-urban areas, the fast moving consumer goods (FMCG) market is expected to double from $14.7 billion in 2008-09 to $30 billion in 2012, according to a study titled “Prospects in the FMCG sector”, released by the Associated Chambers of Commerce and Industry of India (Assocham).
The Indian FMCG sector is the fourth largest sector in the economy with a market size in excess of $14.7 billion.A well-established distribution network, intense competition between the organized and unorganized segments characterize the sector. GST is a tax on consumption, and since FMCGs form the core of the consumption basket, the sector would be watch closely on the heels of its implementation. The sector is bound to witness many gainers and closers, depending crucially on the base and rates of the GST. Currently both centre and state tax rates vary- central value added tax (CENVAT) duty varies from 0-14 % (reduced to 8% under the fiscal stimulus package) and the state VAT varies between 0% and 12.5%. Indications are that the combined centre and state GST on FMCGs could range between 12% and 14%, if applied at a single rate. At this rate, the total burden on FMCG’s should remain approximately the same as under the current structure. However, it would lead to simplication in the tax structure and would mitigate...
Bibliography: “Prospects in the FMCG Sector” a study by ASSOCHAM (Associated Chambers of Commerce and Industry of India)
“A primer on GST” by Sachchidanand Shukla- Sr VP & Economist, Enam Securities
“GST Thought leadership series” by Satya Poddar, Tax Partner, Ernst & Young published in the Financial Express.
“India after GST- Logistics and beyond” by Indian Supply Chain Council
“Impact of Dual GST on supply chains” by S Madhavan, Leader, Indirect Tax Practice, PricewaterhouseCoopers
“White paper on implementation of GST in India”- 13th Empowered Committee of Finance Ministers, 11th November 2009
“Recommendations of GST Task Force”- Finance Commision, 17th December 2009
Sunil Chopra and Peter Meindl, Supply Chain Management: Strategy, Planning & Operation, 3rd Edition, Pearson Education India, 2008.
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