FMCG firms brace for a taxing time

While consumer goods companies were the biggest votaries of a unified tax regime under the goods and services tax (GST), most are now awaiting what the GST Council, the core group of central and state finance ministers, will propose, in terms of the taxation rate, for individual product categories. The reason for this, explains Santosh Dalvi, partner, indirect tax, KPMG, is because not all categories in consumer goods are taxed at the same level.

"For instance, home and personal care currently falls in the 25-30 per cent tax bracket, if all taxes, including excise and value added tax, are put together. Food and beverages, excluding premium products, are at a lower level, below 10 per cent. So are ayurvedic products and medicines, which are even lower, below five per cent, in terms of taxation. Companies will want to know where the GST Council is placing their product category in the pecking order of tax slabs, to determine how beneficial it is to them," he says.
 
Recommendations in the past have proposed four tax slabs for goods and services. These include the exempt category, where the product or service will have zero tax. A concessional rate, where the rate of tax will be 12 per cent; a standard rate of tax, which will be 18 per cent; and a demerit category, where taxation is 40 per cent. Earlier recommendations were that tobacco products, including cigarettes and carbonated drinks, should be taxed in the 40 per cent bracket. But carbonated drink makers have opposed this recommendation, saying it is unfair to bunch them in the same bracket as tobacco products.

A few months ago, the Indian Beverage Association, the apex body of beverage makers in the country, had made presentations to the government to strike off carbonated beverages from the 40 per cent tax bracket. Talks are expected to now gain steam, in light of the impending GST Council meeting, industry sources said.

MAKING CONSUMER THE KING

• Consumer goods makers, including consumer staples and durables, say the taxation rate will be critical to determine how effective GST is
   
• Recommendations in the past have put forth four tax categories - exempt, concessional at 12%, standard at 18% and demerit at 40%
  

 

Those currently in the lower tax bracket, such as 10% (food & beverages) and 5% (ayurvedic products & medicines), will not find the rate effective, if they are bunched in the standard bracket
 

Categories such as carbonated drinks are against being bunched with tobacco products in 40% slab
 

Biggest gainers include home, personal care and consumer durables, which are currently taxed at 25-30%. A 12-18% GST rate will be beneficial