23/06/2017
FMCG companies may not make higher profits on lower GST rates ­ The Economic Times
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FMCG companies may not make higher profits on lower
GST rates
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BY SACHIN DAVE, ET BUREAU | UPDATED: JUN 23, 2017, 12.09 AM IST
MUMBAI: Lower rates of GST may not necessarily mean higher profits for Indian
consumer firms, while the converse is equally true for those selling in limited pockets. The
reason is a simple averaging of tax rates across all states instead of weighted averages,
which would have mapped sales volumes to levies in the relevant states. “On the surface, tax rates of certain products would have seemingly come down
compared to existing rates under GST. But some companies may still have to increase
prices,” said Pratik Jain, National Leader — Indirect Tax at PwC India. “This is mainly
because for some products, the bulk of the sales take place in a few states where the
current VAT may have been lower.” Most products with a direct relationship between GST rates and profits include highend
consumer items mainly sold in Mumbai, New Delhi, Bengaluru, and Chennai. According to a top tax officer, it would have been
virtually impossible for the government to take
weighted averages into consideration. “There is no
reliable
The simple averaging of tax rates could affect products such as shower gels, body
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washes, expensive paints, high­end refrigerators, washing machines, LED lights, and
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costly cellphones.The converse is equally true for many companies that sell about 60­80%
of their products in two to four states: These firms could see a jump in their profits even when tax rates under GST are set to rise. An email sent to the Central Board of Excise and Customs (CBEC) and revenue secretary Hasmukh Adhia, did not elicit any response
until this report went for publication. LITTLE SCOPE According to a top tax officer, it would have been virtually impossible for the government to take weighted averages into consideration.
“There is no reliable
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data that could have helped the government to calculate weighted average of taxes paid by companies. Also, I doubt even companies
collect sales data of each product in each state,” he said. Experts point out that in some way, this could also impact the anti­profiteering clause under GST. “The government wants to ensure that
the introduction of GST does not lead to inflation. Hence, it is keen to ensure that tax rate reductions are passed on to customers in the
form of lower prices and has, therefore, introduced the anti­profiteering rules to keep inflation under control,” said MS Mani, senior
director, Deloitte India. Experts point out that in some instances, a handful of states imposing higher taxes has also distorted the average tax rate, which in turn
influenced the GST rates. The average rate was calculated by adding prevailing tax rates across India, and then dividing the total by the number of states and
union territories. People close to the development said the change in tax rates could also lead to increasing or decreasing inventory, as is evident in the
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23/06/2017
FMCG companies may not make higher profits on lower GST rates ­ The Economic Times
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