Review of literature

OBJECTIVE OF THE STUDY:

 To understand the concept of GST.

 To understand features, advantages and disadvantage of GST.
 To Analyse the Impact of GST on FMCG Sectors.

Goods and Services Tax (GST), implemented in India on July 1, 2017, represents a
transformative shift in the country’s taxation structure. Governed by the GST Council, it
replaces a complex array of central and state-level taxes with a unified system designed to
eliminate tax cascading. The multi-tiered tax structure, ranging from 0% to 28%, ensures that
goods and services are taxed at rates commensurate with their nature. A key feature is the
Input Tax Credit (ITC) mechanism, allowing businesses to claim credit for taxes paid on
inputs, thus reducing the overall tax burden.

GST’s impact extends across sectors, fostering a unified market by eliminating inter-state
barriers and improving compliance through technology. However, challenges such as the
initial complexity and transition issues were encountered. The GSTN, the IT backbone,
facilitates seamless tax administration, requiring businesses to file regular returns through
platforms like GSTR-1, GSTR-2, and GSTR-3. The system’s advantages include streamlined
compliance, reduced tax cascading, and a more efficient tax structure, while ongoing
revisions by the GST Council ensure adaptability to economic changes.

GST Rate Applicable Goods/Services

0% Essential goods, healthcare, education
services, some agricultural products
5% Household necessities, transportation
services, small restaurants
12% Processed foods, computers, some capital
goods
18% Most goods and services, including
electronics, furniture, and financial services
28% Luxury items, high-end goods and services,
and some demerit goods

The implementation of GST has had sector-specific implications. Manufacturing has

benefited from reduced tax burdens, making Indian goods more competitive globally.
However, challenges arose in service sectors due to higher tax rates. E-commerce underwent
changes, with specific provisions governing tax collection at source (TCS) on transactions.
An Anti-Profiteering Authority ensures that the benefits of reduced tax rates are passed on to
consumers, addressing concerns of non-compliance.

Feature Description
Unified Tax Structure Replaces multiple central and state-level
taxes with a single, comprehensive tax,
reducing complexity.
Destination-Based Tax Levied at the point of consumption,
ensuring a more equitable distribution of tax
revenue among states.
Multi-Tiered Tax Slabs Operates on a multi-tiered tax slab system
(0%, 5%, 12%, 18%, and 28%) for
differentiation based on goods and services.
Input Tax Credit (ITC) Allows businesses to claim credit for taxes
paid on input goods and services, mitigating
tax cascading.
Dual Taxation System CGST levied by the central government,
SGST by state governments for intra-state
transactions.
Integrated Goods and Services Tax (IGST) Applied for inter-state transactions, ensuring
seamless movement of goods and services
across state borders.
Goods and Services Tax Network (GSTN) Technological backbone facilitating online
filing, real-time tracking, and efficient tax
administration.
Composition Scheme Allows small businesses to pay a fixed
percentage of turnover as tax.
Threshold for Registration Mandatory registration for businesses
exceeding a specified turnover threshold.
Anti-Profiteering Authority Ensures businesses pass on benefits of
reduced tax rates to consumers, preventing
undue profiteering.
Regular GST Council Meetings Council meetings for periodic review and
revision of tax rates, exemptions, and other
aspects.

Advantages of GST

The implementation of Goods and Services Tax (GST) in India has ushered in several
advantages for the economy. One of the primary benefits is the simplification of the taxation
structure, replacing a complex web of central and state-level taxes with a unified system.
GST eliminates the cascading effect of taxes by allowing businesses to claim Input Tax Credit
(ITC), leading to increased efficiency and reduced tax burden. This unified tax system fosters
a seamless national market by eliminating inter-state barriers, promoting easier movement of
goods and services. Additionally, the utilization of technology through platforms like the
Goods and Services Tax Network (GSTN) has improved compliance, transparency, and
overall tax administration.

Disadvantages of GST:

While GST has brought about significant positive changes, it is not without its challenges.
One of the notable disadvantages is the initial complexity faced during the implementation
phase. The introduction of multiple tax slabs and compliance requirements posed a learning
curve for businesses. Additionally, smaller enterprises may find GST compliance
burdensome, leading to increased costs and operational challenges. Some service sectors
faced higher tax rates under GST, impacting their cost structures and profitability. Balancing
the interests of various sectors and ensuring a smooth transition for businesses has been a
notable challenge in the GST regime.

THE POSITIVE IMPACT OF GST ON FMCG:

1. Fall within the Logistics Cost:

Due to the subsumption of taxes like VAT, Entry tax and OCTROI, logistics tax has
decreased significantly. Post GST, logistics cost for FMCG goods reduced by quite
2%, and for a few products, by 5%. The reduction in logistics cost will increase the
demand for these goods, as they're generally ‘fast-selling goods’. This especially
applies to non-branded products.The benefit under the GST Regime would be visible
and considerable saving amount of Expenses on logistics are often seen in FMCG
Industry. The entire cost of the distribution of the FMCG industry sums up to 2-7%,
which could fall to 1.5% after the entire implementation of GST. An enormous impact
and alter are going to be seen in terms of cost reduction due to the Payment of tax,
smoother supply chain management, removal of CST, claiming input credit, Under the
GST Scenario. The result will cause cheaper commodity . The GST has put up a
Positive effect on reducing the logistics cost, which has benefited the FMCG
companies tons . GST helps the FMCG companies to save lots of some amount of
logistic and transport charges. So, the GST has impacted during a very positive way
for companies, as they need made the Availability chain management to run smoothly
and effectively, with regard to timely payment of Tax, correct claims of input credit,
and CST removal too. This tax write-off in logistics and Transports has benefited the
consumers to avail the corporate products in less expensive rates.
 2. Greater efficiency in supply-chain management:
Earlier, manufacturers were required to open a warehouse in every state, to trade those
Areas. However, with the introduction of GST, this is often not necessary. Thus, the
availability Chain has become more efficient for FMCG goods.

3. An uptick in consumption:
With reduced indirect and logistics cost, the ultimate production of FMCG goods
has now become cheaper. This has benefited both, manufacturers also as end
consumers. This has especially helped manufacturers in rural areas. Thus, there's an
increase in demand for these goods.

4. Warehousing cost:
Warehouses are wont to distribute the products locally. The finished goods from the
Factory arrives at warehouses and that they get distributed to retailers and customers
within the Specific areas. Previously, the warehouses were found out on at those states
where the effective Tax were low, and this also affected the transport costs for the
distributors and therefore the Manufacturers. But now, the distributors and therefore
the manufacturers don’t need to worry About their costs, as GST helps them to chop
their costs. With the execution of GST within the Country, the FMCG companies can
found out their warehouses anywhere, in any state.

5. Foreign Investment:
The foreign investment has now increased in India. Our country is now a unified
market. Because of GST. The FMCG goods that are manufactured in India has now
become more Competitive within the international markets, due to its low cost.
Because the GST has reduced Its export cost and cost both. The implementation of
GST has lowered most taxes and made it Easier for manufacturers and business
owners to sell within the global and international market With none hassle.

THE NEGATIVE IMPACT OF GST ON FMCG:

1. Transitional credits:
Earlier, FMCG companies had to line up units, in several states to trade within them.
The Businesses also received area-based exemptions on taxes. Therefore, FMCG
companies had Invested heavily in these states to open factories. However, with the
introduction of GST, there’s A touch of ambiguity regarding tax refunds to those
players.

2. Frequently changing rates:

 In November 2017, tax rejigs on 200 FMCG goods were announced by the GST
Council. The shortage of clarity in tax treatment has led to immense confusion for
various FMCG goods. For instance , there’s obscurity on applicable taxes on a ‘buy
one –get one free’ product. It’s also Unclear how FMCG companies must apply
promotional schemes.

3. Anti-profiteering issues:
The transitional credits and frequent changes in tax rates have given rise to anti-
Profiteering issues within the FMCG sector. Hence, companies haven’t been ready to
pass the Advantages to customers directly. Additionally , there continues to be
ambiguity on the way to Compute and determine the manufacturer’s profit.
Given the positives and negatives of GST, it’s a assortment for the FMCG sector.
Increased clarity on taxes on promotional activities, constant tax rates and precise
computation of Tax and profit can make GST even more useful for the expansion of
the FMCG sector.

4. No input credit on free samples:

In the FMCG industry promotional schemes like Buy 1 Get 1 Free are quite common .
Under the previous regime no VAT had to be charged on free samples, however
consistent with Sec 17 (5) of the CGST Act, an input decrease won’t be available for
goods given as gifts or free Samples. Non availability of input credit increases
promotional expenses of FMCG companies, Which ends up in increasing overall
prices of FMCG products.

5. Increase capital requirement:

Implementation of GST increased capital costs of FMCG companies, as their
payments Are becoming blocked at various levels in value chain. It also increased
capital requirements of FMCG Dealers and Wholesalers as manufactures of FMCG
delay their payments thanks to Uncertainty about the liabilities and therefore the tax
sett-off for the supplied goods and services.

Reference links

1) Dhokare, C. S. GST AND ITS IMPACT ON FMCG SECTORS IN INDIA.

2) Ramkumar, M. G. (2021). Impact Of Goods And Services Tax On Fmcg Sector.

Turkish Journal of Computer and Mathematics Education (TURCOMAT), 12(11),
158-164.
3) Abhilash, K., & Thimmarayappa, R. A STUDY ON THE IMPACT OF GST ON
FMCG PRODUCTS FROM THE PERSPECTIVE OF CONSUMERS.