FMCG Companies Await GST Implementation Guidelines, Tax Cut to Create Short-Term Disruption

FMCG companies, sitting on a pile of stocks with printed MRP under the current GST regime, are waiting for implementation guidelines from the government to deal with their inventory lying at their warehouses and shelves of retail stores across the country.

The industry players expect that shifting to a new GST regime with reduced duties on FMCG products will boost consumption. However, it will trigger a "short-term disruption" due to existing stocks under the current tax regime.

The industry expects the government to permit them to sell existing stock with the old MRP with discounts even after September 22, when the new GST regime with a lower duty comes into force.

"Right now, everyone is evaluating what has to be done," Emami Vice Chairman and Managing Director Harsha Vardhan Agarwal told PTI.

Besides, "we are also trying to get verification from the government on the matter. Obviously, we will also try as how quickly we can best deal with the changes on the MRP", he added.

When asked about the demand from some FMCG companies seeking more time from the government to deal with the downward price changes, Agarwal, who is also President of trade body Ficci, said it will depend on product-to-product and stock level.

"Challenges might differ from company to company," he said, adding that "at this point in time, we are evaluating the current scenario and the challenges in order to come up with a mitigation plan".

Godrej Consumer Managing Director and CEO Sudhir Sitapati on Monday said consumers will start getting FMCG products at reduced prices only by early or mid-next month, as goods take time to reach markets with the new MRPs.

Terming the reduction of tariff to 5 per cent as "some short-term disruptions" for the FMCG industry, Sitapati said that as the industry operates on an MRP regime, dealers and companies are sitting on stocks with high MRPs.

Simply passing on money to trade does not guarantee that it reaches consumers directly. It will take a little time before new MRPs flow into the market," he added. The new structure of the goods and services tax (GST) will come into effect on September 22. However, Sitapati hinted that it might take a longer time to implement it.

"September may, therefore, be somewhat choppy, with pipeline changes and stock adjustments, but this is temporary," he said.

Parle Products Vice President Mayank Shah said the FMCG industry is waiting for implementation guidelines.

"The industry bodies are already in discussion with the government. Depending on what guidelines are given, we would have to move immediately or give some time," he said.

However, on the existing stocks, Shah said different companies will have different challenges, like food products, which have a shorter shelf life than the personal care items, but the velocity is higher.

Challenges are different for each company. A lot would depend on the guidelines, which are expected to come, he added.

Leading value retailer V-Mart said it would not change MRP on the product label of the existing stock. However, it will provide a discount on the final bill of the consumers.

"The amount of GST reduced by the government will be reflected in the form of a discount on the final bill handed over to the consumer," V-Mart Retail Chairman and Managing Director Lalit Agarwal said.

The company is updating its billing software and has also put up signage at its stores informing customers about the reduction.

Similarly, air conditioner maker Blue Star said it will extend the benefit to consumers from September 22. It has already started work on MRP labels and other administrative procedures.

"For the existing stocks with the dealers, they will have a higher input tax credit at 28 per cent, but they will start billing at 18 per cent to customers. Therefore, they will carry an excess credit of 10 per cent, and it will take 3 or 4 months for them to consume. This is not a financial loss, but a working capital burden. We have decided to ease the same by compensating them for the interest burden," said Blue Star Managing Director B Thiagarajan.

The all-powerful GST Council last week decided to reduce taxes on most of the common-use goods as part of the government's measure to boost consumer spending.

The new structure of goods and services tax (GST), which comes into effect on September 22, will have two slabs of 5 per cent and 18 per cent instead of the current four slabs of 5, 12, 18 and 28 per cent.

Fast-moving consumer goods (FMCG) products such as hair oil, soap, face powders, shampoos, toothbrushes, and toothpaste, along with all food items, have come under the lower slab of 5 per cent from 18 per cent. It has also reduced duty on room AC and TV above 32 inches to 18 per cent.