Impact of Gst
Indian FMCG sector with a market size of $13.1 billion is the fourth largest sector in the economy. A well established distribution network, intense competition between the organised and unorganised segments characterises the sector and makes it a unique sector.
Even at the time of recession, growth in FMCG sector has not slowed down which makes it an important contributor for tax revenue. In fact, among the MNCs, their Indian arms have contributed more to parent entities than foreign counterparts because of the large market size and domestic consumption. This is one of the reasons why the government has never provided much direct incentives or benefits to this sector. From a tax perspective, FMCG sector has been constantly contributing at the highest rate to the government kitty, more so from the perspective of indirect tax on account of its nature of taxation which is levied on consumption rather than income.
In India, indirect tax has a multiple tax structure — taxes at central level such as excise, service tax and customs, and taxes at state level such as VAT and entry tax. Further, there are local levies like octroi.
On account of various taxes, the total tax impact on FMCGs is almost 20-30% which is among the highest in the world. From time to time, the government has provided certain benefits in the form of location incentive which has been utilised by the FMCG sector. For example, excise benefit granted in the state of Himachal Pradesh and Uttarakhand has made most of the FMCG companies to locate their manufacturing facility in the hilly states. These benefits were limited to companies that had set up their operations prior to March 31, 2010, due to which the companies were not able to expand their operations since the benefit would have not accrued to them. However, by a recent circular, the ambiguity has been cleared. Now, even expansion would be eligible for the benefit though the same would be restricted to the initial period of 10 years. This has
Even at the time of recession, growth in FMCG sector has not slowed down which makes it an important contributor for tax revenue. In fact, among the MNCs, their Indian arms have contributed more to parent entities than foreign counterparts because of the large market size and domestic consumption. This is one of the reasons why the government has never provided much direct incentives or benefits to this sector. From a tax perspective, FMCG sector has been constantly contributing at the highest rate to the government kitty, more so from the perspective of indirect tax on account of its nature of taxation which is levied on consumption rather than income.
In India, indirect tax has a multiple tax structure — taxes at central level such as excise, service tax and customs, and taxes at state level such as VAT and entry tax. Further, there are local levies like octroi.
On account of various taxes, the total tax impact on FMCGs is almost 20-30% which is among the highest in the world. From time to time, the government has provided certain benefits in the form of location incentive which has been utilised by the FMCG sector. For example, excise benefit granted in the state of Himachal Pradesh and Uttarakhand has made most of the FMCG companies to locate their manufacturing facility in the hilly states. These benefits were limited to companies that had set up their operations prior to March 31, 2010, due to which the companies were not able to expand their operations since the benefit would have not accrued to them. However, by a recent circular, the ambiguity has been cleared. Now, even expansion would be eligible for the benefit though the same would be restricted to the initial period of 10 years. This has