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Brands differ on GST

News, 12 April 2017

MUMBAI: As the implementation of India's Goods and Services Tax (GST) nears, two of the country's largest consumer goods companies are taking opposite views of the reform's impact, but, regardless, Indian consumers can expect to pay more for soaps, shampoos and toothpaste.

The GST, set to be implemented at the start of July, has been hailed as one of the most important tax reforms since independence, but companies face a lack of clarity as they set strategies to prepare for the reforms.

In anticipation of the GST changes, Hindustan Unilever (HUL) is increasing its production run with the expectation that the reforms will lower its tax burden, while Procter & Gamble (P&G) has taken the opposite view, industry officials told the Economic Times.

"HUL has taken the view that tax rates on some of its product categories may come down after GST," according to one of the people close to the developments. "This would mean that the margins may go up, due to which HUL has increased its production."

Most retail goods are expected to attract taxes anywhere between 18% and 28%. The rate paid by HUL currently sits at around 23%, a burden the company assumes will drop to 18%.

Conversely, in expectation of a rate rise to the full 28%, P&G is "down-stocking its products with retailers, and has even reduced the manufacturing of some of its products".

A tax expert speaking to the Economic Times said, "up-stocking and down-stocking would mean there could be a blip in the GDP recorded after GST is rolled out.

"If things go according to what HUL has envisaged and the tax rates are lowered, HUL would reduce its production and first try to sell products manufactured before the GST date, on which old tax rates apply."

Whatever the approach of individual companies, it is anticipated the changes will benefit the wider economy. An assessment by EY, the professional services firm, observed that a "well-designed GST is expected to simplify and rationalize the current indirect tax regime, eliminate tax cascading and put the Indian economy on high-growth trajectory."

The GST reforms will subsume various taxes including excise, services, octroi and other levies. Proceeds will be divided between the central and state governments.

Under the new regime, goods will be taxed at the point of consumption, rather than multiple times at different rates.

Data sourced from Economic Times, The Asian Age, Wikipedia, EY; additional content by WARC staff