The new Goods and Services Tax (GST) rolled out from July 1 and has taken the country by storm. According to Nomura analysis, these tax reforms are expected to affect the FMCG Companies and firms producing consumer durables positively.
The GST has replaced all the indirect taxes levied by state or central government with an ultimate aim of reducing poverty. It is supposed to centralise the taxation system which should, in the end, benefit the poor. On June 30, Nomura released a note with the analysis on GST. According to that note, the analysts say that in the longer term FMCG companies will benefit from free interstate movement of goods. Better logistics planning would make the transportation cost efficient for them. Moreover, strict implementation of GST would move India’s vast non-tax paying sector to the organised sector.
The analysts also highlighted the key beneficiaries stating that individual impact would differ in the short term. For certain categories it means lower rates and prices for end customers. Among the FMCG firms, toothpaste maker Colgate is expected to benefit the most. Under the new taxation system, the average indirect tax on toothpaste is 18 percent, reduced from an average of 23-24 percent. It means that Colgate can reduce their prices by more than 5 percent. But Colgate’s competitors were in a lower tax bracket compared to it, thus they will end up paying more or less the same rate of tax. Thus they won’t be able to reduce the prices and expand sales like Colgate.
Similarly, the franchisee for Domino's Pizza and Dunkin' Donuts in India, Jubilant FoodWorks will also benefit from the lower tax rate.Before GST, the tax rate applied was 20 percent while now it is 18 percent. And they also get a full credit for the service tax paid of which the company will now be "able to take advantage of the input tax credit on rent, operating expenses, housekeeping, internet bandwidth, etc." according to the analysts. In general, GST is beneficial for the quick-service restaurant companies in India.
ITC, the FMCG company who is also a seller of cigarettes, will also benefit due to removal of dual taxation. Before GST the Value Added Tax (VAT) was applied on MRP which was inclusive of excise duty. Thus, after implementation of GST they will be able to reduce the prices by 5-6 percent.
The analysts also said that biscuit maker Britannia will also benefit from GST implementation. From an overall increase in taxation, they will be able to capture more market share. Their biscuits will fall into less premium category for the users which will help them increase their sales.
For firms selling consumer durables, companies like Crompton and Havells will benefit the most. The taxes for fans have risen from 26 percent to 28 percent. But Crompton will benefit from the declining rates of lights and pumps.
According to Analysis Done by Nomura Colgate, ITC and Britannia to Benefit the Most from GST in Long Duration