FMCG firms expect to pass on the money they save through the tax to consumers
February 14, 2016:
With profits plummeting for most big FMCG majors due to weak consumer sentiment, lower indirect taxes through the implementation of GST is looked upon as the biggest incentive that can propel sales and profit growth for the industry.
“GST will give us a fillip. But apart from that, increasing the income slabs will help in giving more money into the hands of consumers which should have an indirect effect on FMCG companies,’’ says Adi Godrej, Chairman of Godrej Group.
In fact, GST is expected to have a cascading effect which will not only impact FMCG companies but also help indirectly in getting more money into the consumer wallets.
“FMCG companies expect the GST to replace indirect taxes which will help them in reducing compliance costs and paper work. It will have a cascading effect whereby FMCG companies will end up losing less money and pass on the benefits to consumers. FDI is also a black box and clarity will help FMCG in forging JVs with global brands,” observes Anil Talreja Partner, Deloitte Haskins & Sells.
Categories like food are hoping the Budget will protect the existing excise structure and help in giving more money into the hands of the consumer.
For instance, with rising input costs, biscuit makers are requesting for an increase in central excise exemption threshold from the current ₹100 a kg to ₹150 in the Budget.
With the minimum selling price of commodities such as wheat, milk and sugar rising, most of the biscuit majors have been forced to increase prices between 25 and 30 per cent since 2007.
“Most of our brands including Marie are above ₹100/kg. We are now expecting the Centre to exempt excise duties to at least ₹150 per kg as there is inflation in commodity prices which has made most of our brands go above this price range,” says Praveen Kulkarni, Marketing Head, Parle Products.
Making processed food more affordable for the common man is what food-based FMCG companies are seeking from the Budget.
“We want overall taxes to be less since affordability of processed food is an issue for the common man and less GST and excise should be the way forward in the new Budget. Besides, incentive should be given for the agriculture sector since it is linked to food and 60 per cent of the economy is dependent on it and it is also helps in GDP growth,” said Piruz Khambatta, Chairman and Managing Director, Rasna, and Chairman of CII National Committee on Food Processing.
Ice-cream makers such as Vadilal Industries are also expecting excise duties to be maintained at their current levels.
“We just hope we do not end up paying more indirect taxes apart from the current 6 per cent excise since we have to compete with the unorganised sector which does not pay any taxes. GST is always welcome but at the same time the rates should be favourable to the food companies,” says Devanshu Gandhi, Managing Director, Vadilal Industries.
Branded edible oil players, such as Cargill India, are hoping that there is more parity in import duties between crude palm oil and refined edible oil imports to encourage more refining in the country.
According to Siraj A Chaudhry, Chairman, Cargill India, “The Budget should try and equate Indian oil refining companies with their international counterparts by increasing the import duties from the current 7.5 per cent to 15 per cent. This would encourage the ‘Make in India’ initiative of the government and encourage more oil refining in the country.”