Oct 19, 2016 10:31 AM IST | Source: CNBC-TV18

GST rate of 22% effective for FMCG companies: Harsh Mariwala

Harsh Mariwala, CMD, Kaya says 22 percent is an effectiver GST rate for fast moving consumer goods (FMCG) companies. He also says that any sin tax below 40 percent will be beneficial for the industry.

The GST Council, which is in the midst of a three-day meeting, has discussed multiple tax rates under the new tax regime. Minimum tax rate of 6 percent and a maximum of 26 percent is under consideration.

Harsh Mariwala, CMD, Kaya, said 22 percent is an effective GST rate for fast moving consumer goods (FMCG) companies. He also said that any sin tax below 40 percent will be beneficial for the industry.

Below is the transcript of Harsh Mariwala’s interview to Sonia Shenoy and Latha Venkatesh on CNBC-TV18.

Sonia: What is your reaction to this tax rate?

A: Good news is that the past due, the basis on which the government has to pay to the states has been resolved. So, one compensation issue between the states and the centre has been resolved yesterday which is a good thing.

As far as the tax rates are concerned, the government has added one more slab compared to what we had thought earlier. It was supposed to be 12, 20. So, there are two slabs, 6 percent is one and 26 percent is another instead of 40 percent and then on top of it, there is extra cess which comes in. So, the number of slabs have increased to that extent. The simplicity part of goods and services tax (GST) will get compromised to some extent. However, a lot will depend on what category of products will go into which slabs. Until that is known, it is difficult to give a picture in terms of what is likely to be the impact.

Latha: Let us assume it is 26 percent for most of your products. Would that hurt?

A: Depending on the kind of products we would be in, in some cases, say high-end fast-moving consumer goods (FMCG) products currently have a 12 percent excise duty plus value added tax (VAT) which will be in the range of around 10-12 percent. If you take a rate of 26 percent then there will be certain set-off available to you in terms of your input cost. So, the effective rate would come down to about 20-22 percent. So, it will be in the line with current -- depending again on which category of products go into which slab, it may be tax neutral. The earlier benefits will likely to come to the sector, some of them may not come if they are put into the 26 percent bracket.

Latha: So, 26 percent itself would mean effectively, for you, 22, which is what the current rate also is.

A: I am presuming.

Latha: I agree these are proposed rates.

A: No, I also do not have exact number in terms of what will be the set off available. So, I am just guessing.

Latha: If it is a luxury product, let us assume that there is a luxury Dove shampoo or there is a luxury L’Oreal hair colour and in the same vein, let us even go to luxury cars -- Jaguar and Land Rover will not be in the same category -- but if there is a cess on top of this?

A: I do not think you can have so many exemptions, because again, to say luxury shampoos will go into some other category, it will make the whole GST very complicated. The whole objective of GST is to bring in simplicity and ease of doing business. So, if you add more and more items like this, it will add to many more complications. So, I do not think you can have a Dove or a certain price point saying that this is a shampoo above Rs 100 or whatever so it should go into the extra cess. I do not think that is a good idea. I do not know what the government wants to tax under the cess but I reckon it will be some luxury cars above a certain capacity and things like that. But, I do not think it can apply to FMCG products nor cess because it will make it very complicated.

Sonia: So, coming back to that earlier point you made about input costs, I wanted to ask you what percentage of your raw material costs is excise duty exempt currently.

A: Depending on what kind of category, what kind of products you are talking of, we have so many products and so many categories that it is difficult to give one number to you.

Sonia: So, if there is a 6 percent GST on say raw materials like Copra, for example, what could the impact be?

A: Then in that case, for edible oils, let us put it that way, it will be neutral or it may be mildly positive. It may be neutral, I would say.

Latha: Mildly positive because you will get a set off which is not available.

A: I do not have the exact numbers.

Latha: One does not know about the luxury cars, but for sure it appears that the sin goods, as it is called, cigarettes and liquor will get this luxury cess. Good idea or bad idea?

A: Earlier, they were talking of 40 percent sin tax. Now, depending again on what is the cess, at one level no one was prepared for a mindset of a 40 percent sin tax. A 26 percent plus some sort of cess will, depending again what is the cess amount, I do not think it will be reaching fresh 40 percent from whatever I can guess, but if it is less than 40, then it is beneficial compared to what one had expected earlier.

Latha: Since we have you, how has been the festive season?

A: So far muted in terms of demand. So, let us wait and watch for some time.
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