IMPACT OF GST ON FMCG COMPANIES IN INDIA

AYESHA SAFA SAYED

B.com F&A, Department of Professional Studies, Christ University, Karnataka, India

MANJUSHA J
B.com F&A, Department of Professional Studies, Christ University, Karnataka, India

FEMI ROY
B.com F&A, Department of Professional Studies, Christ University, Karnataka, India

ABSTRACT
The fast-moving consumer goods are our important contributors to both direct and indirect tax.
When we look into the GDP contribution, FMCG is an important player. Goods and Service Tax
which subsumed most of the indirect taxes in the country would have a significant impact on the
fast-moving consumer goods sector. This research paper being a quantitative research uses data
relating to ten FMCG companies collected from Moneycontrol.com and various other data from
journals, articles to analyze the impact of GST on the companies in the FMCG sector.

The main objective of the paper is to know how GST has impacted the companies in the FMCG
sector.

KEYWORDS: GOODS AND SERVICE TAX (GST), FAST MOVING CONSUMER GOODS
(FMCG) SECTOR.

INTRODUCTION
The earlier tax system in India is a complex tax system. It results in a multiplicity of taxes,
cascading andcomplicated tax obligation. GST (Goods and services taxes) which came into
effect from 1 July 2017 subsumed various indirect taxes under it. GST would result in the simple
tax regime. Cascading effect to being removed under GST.

India has adopted a dual taxation system wherein the state and central government together
collect the tax. Tax slabs under GST are 5%, 12%, 15% and 18%. Some essential goods like
fresh meat, eggs, bread, fruit, honey and salt are exempted.
Indian FMCG industry has a market size of 2.0 trillion and it is the fourth largest state of the
economy.

Major segments in the FMCG sector are:

30% household sector (Fabric wash, household cleaners)

30% Personal care (Oral care, Haircare, Skincare, cosmetics, Hygiene and paper products)

50% Food and Beverages (Health beverages, Bakery, snacks, chocolates, ice cream, processed
fruits and vegetable and dairy products etc)

GST is going to have a significant impact on the FMCG sector. Simpler tax regime under GST is
going to benefit the FMCG company. It is also going to impact on the pricing strategies, sales,
cost, tax compliances of FMCG companies.

REVIEW OF LITERATURE

1. MilandeepKaur, Kajal Chaudhary, Surjan Singh, BaijinderKaur (2016); “A STUDY ON

IMPACT OF GST AFTER ITS IMPLEMENTATION” for IJISSH volume 1 issue 2.

The above research mainly focuses on what are the impacts of GST after its implementation, the
difference between the present indirect taxes and GST and also benefits and challenges of GST
after its implementation. Research being a qualitative research analysis on how various goods
and services are being taxed under GST. Researches use the consumer price index which is a
statistical estimate constructed using the prices of items collected periodically. With the help of
CPI researcher analysis, the significant impact of GST on various items which comes upto 20-
25%. Researchers conclude stating that GST would reduce the tax burden and also play anactive
role in the growth and development of our country.

2. AurobindaPanda (KNT school of Law), Atul Patel (KIIT school of law), “THE IMPACT OF
GST (goods and service tax) ON THE INDIAN TAX SCENE (2010) AT SSRN”

The research paper analyses how GST would impact on Indian tax scenario. The authors have
given a brief history of Indian taxation and its structure. Background of GST outside India as
well as in India is also discussed. Authors concluded that GST would be beneficial for the
industry and the consumers. It would lead to an increase in revenue for the government.

3. Monika Sehrawat, Ubasana Dhanda, “GST IN INDIA, A KEY TAX REFORM” for
international journal of research- Granthalayah (December 2015)

This research presents an overview of GST concept. It explains the features and its live line of
implementation in India. The paper also highlights the advantages and disadvantages of GST in
India. The author concludes that GST fulfils the requirement of the simplified, user-friendly and
transparent tax system. The author also states that with the coming of GST, it will lead to higher
more employment opportunities and flourish GDP by 1-15 %.(Sehrawat & Dhandha, 2015)

4. Dr Mohan Kumar, CA Yogesh Kumar, “GST AND ITS PROBABLE IMPACT ON THE
FMCG INDUSTRY IN INDIA”, (April 2017) for the international journal of research in
finance and marketing.

This paper analyzes the impact of the FMCG industry. The fast-moving consumer goods
(FMCG) sector of India compromises more than 50% of the food and beverage industry. And
another 30% from personal and household care. Presently the peak tax cost for industry players
amount to approximately 27% i.e. (excise duty of 12.5% and VAT ranging from 12-15%) under
the GST regime, its proposed that the revenue neutral rate would be in the range of 16-19%.

5. R Hiremani Naik, Sudina TA, “A STUDY ON PERSPECTIVE IMPACT OF GST ON

FMCG SECTOR IN INDIA”, December 2017, for international journal of research in
Business studies.

The fast-moving consumer goods (FMCG) segments arethe fourth largest sector in the Indian
economy. The sector is likely to see a significant impact once the goods and service tax(GST)
bill is passed as the companies set warehouses across the states in a bid to have a more tax
efficient system.FMCG is one such sector directly having its impact on the large public. It is very
important to study the possible positive and negative impact of GST implementation on the
FMCG sector.(Naik & A, 2017)

6. Rajkumar Chandran, September 2017, “A STUDY ON IMPACT OF GOODS AND

SERVICE TAX ON INDIAN INDUSTRIES” with reference to FMCG sector, an
international journal of Innovative Research in Management studies.

India’s most awaited and biggest tax reforms have come into reality, the Goods and Service
tax(GST) which has replaced most multiple indirect taxes which were used to be levied on
different items of goods and service. The GST has helped in terms of revenue from the past two
months, hence it has been affectedby 01.07.2017 and helped in solving the cascading effects of
the tax.

GST has emerged into transparency in the indirect taxation of the country. Taxations and its
associated governing laws, in the current scenario, are playing a vital role in business industries,
individuals also for the government for the betterment of policies for social good. The research
paper talks about the impact of goods and service tax on Indian industries, with reference to
FMCG sectors, which will give the overall idea about the positive and negative effects of GST.
The paper is made using exploratory research methodology by a secondary source of data.
(Chavan, 2017)
7. Lourdunathan F and Xavier P, December 2016, “A STUDY ON IMPLEMENTATION OF
GOODS AND SERVICE TAX IN INDIA”; Prospects and challenges, an internal journal of
Applied Research.

There isa mixed response, inexplicit, arguments and opinions among manufacturers, traders and
society about the Goods and Services Tax to be implemented by Government of India from
01.04.2017. various news organizations from all around the world focused on the bill unifying
the country and it is an achievement of the Government. As GST bill was passed in Rajya Sabha
it also brought India at the centre of the global economy. The paper highlights the background,
prospectus and challenges in the implementation of GST in India.

Research questions
1. What is the impact of GST on the companies in the FMCG sector?
2. How GST is affecting the purchase, profit, sales revenue, tax and share prices of the
companies in the FMCG sector?

Objectives
This research paper has the following objectives

 To study the impact of GST on the companies in the FMCG Industry in India.
 To analyze whether the impact if any is positive or negative
 To analyze the impact of Goods and Service Tax on the sales, purchases, net profit, tax
and stock prices of the selected companies pre and post GST.

RESEARCH DESIGN
STATEMENT OF THE PROBLEM
This research focuses on the impacts of GST on the companies in the FMCG sector. Research
paper studies the variations in the profit, sale, purchases, tax and share prices of the FMCG
companies pre and post GST.

Sources of data
 Source of data
The secondary source for collection of financial statements of the 10 companies (Money Control,
n.d.) and stock prices for calculation of abnormal returns pre and post GST(NSE National Stock
Exchange of India Ltd, n.d.)

Research papers regarding the impact of GST on the FMCG sector(Chavan, 2017) have also
been done but they are exploratory in nature and are qualitative in nature.
  Data type
Quantitative data is used for this research.

HYPOTHESIS
NULL HYPOTHESIS H0: THERE IS NO SIGNIFICANT IMPACT OF GST ON THE
COMPANY

ALTERNATIVE HYPOTHESIS H1: THERE IS A SIGNIFICANT IMPACT OF GST ON THE

COMPANY

DATA ANALYSIS TOOLS

A sample size of ten companies viz. Hindustan Unilever Ltd, ITC, Britannia, Dabur Ltd, Godrej,
Procter and Gamble, Jyothy Laboratories Ltd, Manpasand beverages Ltd, Marico Ltd and Nestle
India Ltd are taken for analyzing the impact of goods and service tax with respect to companies
in the FMCG sector. The companies chosen are mostly Indian companies and based on the data
available with respect to the financial statements available on quarterly basis for a period of four
quarters pre and post implementation of the Goods and Service Tax Act as on 1st July 2017
(Chavan, 2017)and the scale and magnitude of operations of these companies. Also, regarding
the stock prices, data for a period of ten days each pre and post-GST has been taken by
computing abnormal returns during this period.(NSE National Stock Exchange of India Ltd, n.d.)

Using the SPSS software, a regression analysis was used to check whether the change in sales,
purchases, net profit, tax and stock prices for pre and post-GST has a significant impact. This
was done using the significance value obtained by using ANOVA.

EXPECTED OUTCOME
This research aims to assess whether there is an impact of goods and service tax on the
companies in the FMCG sector and in case such impact does exist whether it has a positive or
negative impact on such companies and the reason why there is an impact.

LIMITATIONS
 This research relies on secondary data. No primary data is involved in this research.
 The sample selected is based on the availability of data regarding the financial statements
of the companies available online. (Money Control, n.d.)
 Income from other operating activities has not been taken into consideration has few
companies did not have such income in their financial statements.
 DATA ANALYSIS AND INTERPRETATION

COMPANIES SALES PURCHASES NET PROFIT TAX STOCK PRICE

NESTLE INDIA 0.04 0.042 0.039 0.056 0
MARICO 0.666 0.277 0.471 0.332 0.074
MANPASAND 0.535 0.63 0.679 0.776 0.226
JYOTHY 0.038 0.092 0.669 0.189 0.241
ITC 0.568 0.235 0.011 0.477 0.254
HUL 0.159 0.164 0.147 0.902 0.017
P&G 0.33 0.505 0.934 0.907 0
GODREJ 0.002 0.244 0.05 0.169 0.486
DABUR 0.005 0.97 0.065 0.362 0.83
BRITANNIA 0.009 0.296 0.025 0.007 0.454

*The highlighted ones have p-value lesser than 0.05

After analyzing the Linear regression (by using ANOVA) with respect to sales following
companies have been impacted by GST (p-value lesser than 0.05 we reject the null hypothesis).

1. NESTLE INDIA
2. JYOTHY LABORATORIES
3. GODREJ CONSUMER PRODUCTS
4. DABUR
5. BRITANNIA INDUSTRIES LIMITED

With respect to net profit following companies have been impacted by GST (p-value lesser than
0.05 we reject the null hypothesis).

1. NESTLE INDIA
2. ITC
3. GODREJ CONSUMER PRODUCTS
4. BRITANNIA INDUSTRIES LIMITED

With respect to purchasing following company have been impacted by GST (p-value lesser than
0.05 we reject the null hypothesis).

NESTLE INDIA

With respect to taxfollowing company have been impacted by GST (p-value lesser than 0.05 we
reject the null hypothesis).
 BRITANNIA INDUSTRIES LIMITED

With respect to stock price companies have been impacted by GST (p-value lesser than 0.05 we
reject the null hypothesis).

1. NESTLE INDIA
2. P&G
3. HUL

From the above analysis, this research has found that there is an impact of GST of the business
operations and other financial factors. We can see that GST have an impact on FMCG, but it is
on varying items and on various aspects. In the case of purchases, the comparatively affected
company is Nestle India. Raw materials of Nestle include milk, coffee, cereal, fruits, vegetables
(partly procured from farmers), sugar, oil, meat, spices etc. most of the above materials are
exempted from GST. This reason can affect the cost of purchases.

These changes in rates of taxes from VAT/CST to GST shows the impact on sales of the
company. Rates under VAT/CST and GST for these goods are different. This difference resulted
in impact in the sales.

Nestle India Ltd, the local entity ofSwisspackaged food maker Nestle SA, on Friday, reported a
50%jump in its net profit for the quarter ended June 30 backed by lower cost of raw materials.

According to Nestle India, its chocolate brand KitKat, instant coffee brand Nescafe and instant
noodles brand magi continued to grow strongly during the period under review. The local unit of
the Swiss packaged food company has also entered the breakfast cereal market with Nesplus and
canned beverage with Nescafe ready to drink offering during the immediate past to boost
presences in growing health and nutrition space.

In the run-up to the implementation of the GST, expected on July 1st, consumer goods companies
such as Hindustan Unilever and P&G are either changing their production strategies or raising
prices to reflect the new tax treatment for their products. HUL, India’s biggest consumer
company, has increased its production run in anticipation that GST would lower its tax burden,
while P&G has taken opposite view for its range of products.

Hindustan Unilever Ltd has taken the view that tax rates on some of its product categories may
come down after GST. This would mean margins may go up, due to which HUL has increased
its production. P&G, however, is down stocking its products with retailers and has even reduced
the manufacturing of some of its products. P&G has taken a turn towards hiking the price in
order to capture the same amount of marginal profits then made some relaxation in future price
cut once GST came into actualization which bought the anti-profiteering clause along with it.
TAX IMPLICATION ON BRITANIA
Biscuits are under a higher 18% rate under the GST regime. That has impacted traders and
distributors who initially did not stock up on goods leading up to the implementation of the new
tax regime on 1st July, but Britannia has also had the deal with a different kind of issue arising
from GST. Britannia has gone to court against its distributors in Kerala alleging that they
resorted to unfair trade practices to extract higher margins after GST.

Key raw material prices stayed high in the quarter with an inflation rate of around 6% while its
international business continued to be hurt by deteriorating geopolitical situation and currency
fluctuation in the middle east and Africa.

Growth in its dairy business was subdued due to its focus on value-added products rather than
mass market, everyday commoditized products.

Marico and Manpasand are the 2 companies which are not being affected by the GST. There may
be a smaller impact. But regression analysis could not bring out such smaller impacts. The size,
structure, process of accruing raw materials, supply chain management of the company will
decide how GST is going to impact various operating items of these two companies.

It is being observed that GST going to impact the FMCG. Most of the FMCG products come
under the GST slab rates of 12 and 18 percentages. This can definitely affect the sale. Under
GST some of the goods are exempted from paying taxes and availing of input tax. Input tax
credits will definitely affect the cost of purchases of the FMCG companies. When sales and
purchases are impacted, there would be some kind of impact on net profit as well. Under the
GST there will be a single repository to all transaction. This help the income tax department to
check all purchases and sales of various companies to calculate the net profit and tax thereafter.
This can show the impact on the tax paidby the companies if they were hiding tax in previous.
GST is a law that came in to force recently. In a short-termperspective, it is only possible to
estimate whether there is an impact or not on various FMCG companies. It requires much more
time to know whether the impact is beneficial or not to the FMCG companies.

CONCLUSION
GST is a recent policy introduced. GST aims at simpler tax regime and transparency in all
transaction. FMCG sector which is an important player in the market sector has been impacted
by GST to some extent. This research concludes that GST has an impact on various aspects of
FMCG companies. Since it has only been a year from when the GST law came into force, the
extent or degree of such impact cannot be completely fathomed. It would require more time to
evaluatewhether GST would prove to be beneficial to FMCG companies. As of now, it seems
that it is beneficial to these companies.
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