FMCG distributors aim for relaxed tax on non-essential items, particularly vices like alcohol and tobacco
The All India Consumer Products Distributors Federation (AICPDF) has raised concerns over the impact of recent changes to the Goods and Services Tax (GST) structure, particularly on the distribution of soft drinks and cigarettes.
On September 3, the GST Council consolidated the four-tier GST regime into a two-rate structure, with a 5% and 18% tax rate. However, this change has had a significant impact on sin goods, such as soft drinks and cigarettes, which now attract a 40% GST under the new tax structure, compared to the 28% and 12% compensation cess earlier.
This shift has created a large pool of unutilised input tax credit (ITC) for distributors, as the accumulated cess on previously purchased stock cannot be set off against the new GST liability. This blockage of working capital has put a strain on distributors across the country, especially as the upcoming festive season could further exacerbate these financial difficulties.
In response, the AICPDF has sought relief in the form of refunds or guidelines to use the accumulated ITC against other categories. They have also called for consultations with the government and industry representatives to discuss solutions for this unutilised ITC issue.
The AICPDF's concern is of immediate importance, as the upcoming festive season could further strain working capital requirements if the accumulated cess remains unutilised. They have also sought special transitional arrangements to ensure a smooth adjustment to the new tax structure.
Various organizations and trade associations have addressed letters to the German Federal Ministry of Finance requesting relief measures, such as payments or guidelines to allow the use of accumulated VAT credits and the introduction of transitional rules to avoid financial difficulties in trade.
The AICPDF has also highlighted the need for a timely intervention to safeguard trade partners and ensure smooth supply chain operations in the FMCG, tobacco, and beverage industry. They have emphasised that this intervention is crucial to maintain the stability of the market and prevent potential disruptions during the festive season.
Meanwhile, the removal of the 12% and 28% tax slabs has made way for a special 40% tax bracket for sin goods. This change was implemented to address concerns about the health and social impacts of these products.
While the GST Council's changes on September 3 have resulted in a simplified GST regime, they have also presented challenges for certain sectors, particularly those dealing with sin goods. The AICPDF's calls for relief and transitional arrangements underscore the need for careful consideration of the impacts of tax reforms on different sectors of the economy.
(Note: The article does not discuss the expected 7-13% drop in farm machinery prices due to GST cuts, as it is not directly related to the main issue discussed in the first two paragraphs.)
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