A study on GST & its impact towards FMCG sector with special reference to Tumkur District, Karnataka.
G. Krishna Naik
Assistant Professor,
Department of Commerce,
Govt. First Grade College, Tumkur (INDIA)
Abstract
Fast moving consumer goods (FMCG) are product that are sold quickly and at relatively low cost., example include non-durable goods such as packaged food, beverages, toiletries, over the counter drugs and many other consumables, FMCG is the fourth largest sector in the Indian economy. There are three main segment in the sector – food and beverages which accounts for 19% of the sector, healthcare which account for 31% and household and provisional care which accounts for the remaining 50%.
The goods and service tax (GST) was introduced with five standard tax rates –5%, 8%, 12%, 18%, 28% under the tax regime the average tax on MFCG products is in the range of 18% to 20% which is clearly lower than the previous tax system. However the imports of GST on individual product, the tax rates of some commodities have increased while decreased for many others.
Introduction
GST is a one of the biggest indirect tax reforms in the country. GST is a expected to bring together state economics and improve overall growth of the nation. GST is a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as service at the national level, it will replace indirect tax levied on goods and service by state and central.
There are around 160 countries in the world that have GST in place, GST is a destination based taxed where the tax is collected by state, where goods are consumed, India is going to implement the GST from July 1st 2017 which has adopted duel GST model in which both State and Central levies tax on goods and service both.
Goods & Service Tax
GST is a biggest indirect reform of India. GST is a single tax on supply of goods and service. It is a destination based on tax. GST will subsume central exercise law, service tax law, VAT, Entry Tax octroi etc.,
Objective of study
Difference between GST & Previous tax structure
VAT structure and GST
|
Parameters |
VAT |
GST |
|
Structure |
Under the old taxation system the Central Taxes applicable were custom duty / central exerciser duty, Central sales tax on commodities and service surcharge & cesses. The State taxes including Stat VAT, WCT, entertainment tax, luxury tax, tax on gambling, betting & lottery, sales tax deducted at sources & surcharge & cesses. |
Under the GST all the Central and State tax will be subsumed and a single tax will be levied on all commodities & services apart from motors spirit, petroleum, natural gas and high speed diesel. |
|
Basis of levy |
Under the VAT, tax will be levied at place where goods are manufactured or sold or the place at which services are rendered. |
Under the GST, tax will levied at place of the consumptions like destination that based tax. |
|
Registration |
Under the VAT the registration is decentralized under the State and Central authorities. |
Under the GST, there will be uniform e-registration depending upon the PAN of the entity. |
|
Validation |
Under the VAT the system will partly validate the returns and full verification will be subject to assessment by state or central authority. |
Under GST the validation will be take place on the system & consistency checks will be carried out on input credit availed, tax payments, utilization. |
|
Filling the returns & collection of Tax |
Under old scenario, service tax and central excise were uniform, but VAT varied from state to state. |
Under the GST, the process in uniform and the dates for collecting or depositing tax & filling returns are common. |
|
Service Tax |
Under VAT, the central changes service tax on a list of services under the finance act on provision / payment basis. |
Under the GST, the state GST subsumes service tax depending upon ruled relating to place of supply. |
|
State VAT |
Under Vat, all commodities apart from those exempt are taxed. |
Under GST, the state GST subsumes this tax. |
|
Basic custom duty |
Under VAT, the central changes tax on imports under the separate act. |
No change. |
|
Special additional duty |
Under the VAT, the central changes tax on imports separately. |
Under the GST, duty is subsumed by state GST. |
|
Entry Tax |
Under the VAT entry tax charged by certain state interstate transfers, detained as import in local area. |
Under the GST entry tax is not applicable but an additional 1% will be levied as tax on inter-state supply of certain commodities. |
|
Central Sales Tax |
Under the VAT, CST is changed at a concessional rate of 2% sofar as interstate transfer are concerned against C-Forms. The full rate applicable other_wise ranges from 5% to 14.5%. |
Under the GST, the integrated subsume CST. |
|
Tax on export of the commodities & services |
Under the VAT, this tax is exempt |
No change |
|
Tax on inter-state transfer of commodities to agent or branch |
Under the VAT, this tax is exempt against Form F. |
Under the GST, these tax is levied but dealers will have access to full credit. |
|
Cross set off levy |
Under the VAT, set off of service tax and excise duty is permitted. |
Under the GST, set-off between state GST & Central GST is not allowed. |
|
Disallowances of credit on certain items |
Under the VAT, there are few non- creditable commodities and service under VAT as well as CENVAT rules. |
Under the GST, there will be no such disallowances unless the GST council specially allows it. |
|
Disallowances of input services utilized is exempted commodities or services |
Under the VAT, this is not permitted. |
Under GST, there will be no such disallowances, unless the GST council finalizes a list of those items falling under the negative list. |
|
Cascading effect |
Under the VAT, credit between the service tax & excise duty is available, but there is no set of against VAT on excise duty. |
Under the GST, credit available on the whole amount of taxes up to retailers. |
|
Threshold limits for levy of tax |
Under the VAT, the threshold for central excise is Rs.1.5 crore and threshold for VAT ranges between Rs.5 lakh to 20 lakh depending upon the state, the threshold for service tax is Rs.10.00lakh |
Under the GST, the state GST will range between Rs.10 lakh to Rs.20 lakh based on recommendations of the GST council. |
Research problems
GST is a fixture diversion reform for Indian economy by developing common Indian market and reducing the cascading effect of TAX on the cost of goods and service. It is a consumption based tax levied on sale, manufacturing and consumption of goods and service, under the GST various indirect taxes would be subsumed and hence it is going to result in simple tax regime especially for like FMCG.
In this sector, GST would have impact pricing working capital contract with venders and commodities etc. The sale of retailer and the monthly budget of the common people reading fast moving consumer goods should have an impact of GST, moreover the concept of GST awareness common man is an important matter to be analyzed.
Research methodology
The research design constitutes the blue print for the collection measurement and analysis of data. The project uses on explanatory research technique based on the past literature covering collection of academic literature on GST, here primary and secondary data are used for this project, the sapling methods is used this project is conveyance sampling the tools and analyses used in this study includes tables.
Monthly consumption expenditure for some FMCG before and after GST.
In order to find out degree of relationship between before and after GST monthly expenditure correlation analysis is used.
|
Sl.No. |
Goods |
B. GST (x) |
A. GST (y) |
X2 |
Y2 |
X & Y |
|
01 |
Tooth paste |
1540 |
1620 |
2371600 |
2624400 |
2494800 |
|
02 |
Soap & detergent |
4200 |
4500 |
17640000 |
20250000 |
18900000 |
|
03 |
Sugar |
4220 |
4520 |
17808400 |
20430400 |
19074400 |
|
04 |
Tea / Coffee |
3120 |
2900 |
9734400 |
8410000 |
9048000 |
|
05 |
Rice |
22500 |
23400 |
506250000 |
547560000 |
526500000 |
|
06 |
Wheat |
2530 |
2475 |
6400900 |
6125625 |
6261750 |
|
07 |
Edible oil |
16720 |
17050 |
279558400 |
290702500 |
285076000 |
|
08 |
Milk |
21140 |
22230 |
446899600 |
494172900 |
469942200 |
|
09 |
Agarbatties |
1245 |
1275 |
1550025 |
1625625 |
1587375 |
|
|
TOTAL |
77215 |
79970 |
1288213325 |
1391901450 |
1338884525 |
Interpretation
There is a high degree of positive correlation between before and after GST monthly expenditure, the variable are moving and varying in the same direction.
Conclusion
GST will alter the present system of production based on taxation to consumption based one with the implementation of goods and service tax, FMCG sector would really change. FMCG sector consist of 50% food and beverage sector and 30% in the house hold and personal care FMCG sector is a major taxation contributor both direct and indirect in the economy. The multiplicity of taxation influence the companies decision on manufacturing location and distribution of goods. FMCG companies set their manufacturing units warehouses where they can avail tax benefits to transfer stock from warehouses among the states. They have to pay taxes, so GST would surely impact on FMCG sector as taxes effect the cost of the company.
References
News papers