The Fast-Moving Consumer Goods (FMCG) distributors’ association has written to the Finance Minister regarding potential issues the supply chain could face due to the change in GST rates and has requested guidelines to ensure there is no disruption during the transition.
This comes after the Prime Minister announced GST reforms as a Diwali gift to lower the tax burden on the common man during his Independence Day speech.
According to news reports, the 12 per cent GST rate is expected to be removed, and the items are likely to fall under the 5 per cent slab.
Some of the items currently taxed at 12 per cent include packaged and processed foods like butter, ghee, pickles, jams, nuts, soya milk, fruit juices, tooth powder, namkeens, savouries, chips, bhujiya, and snack foods, among other FMCG products.
The All India Consumer Products Distributors Federation (AICPDF) said in its letter, which Business Standard has seen, that this could impact the stock of items already in trade.
In its letter, it stated, “Large volumes of goods are already present in the trade pipeline and at retail counters. Sudden rate changes, without directives, may affect margins, create disputes, and confuse consumers. We urge the issuance of clear guidelines to manufacturers on pricing and stock adjustment.”
It also noted that while rate cuts are expected to benefit consumers, there is a risk that the benefits may not flow uniformly through the supply chain, which could squeeze distributor and retailer margins.
The AICPDF asked the ministry to issue clear directives so that both trade and consumers are not affected by the changes.
A company executive, speaking on the condition of anonymity, said that any increase or decrease in rates will be passed on to the consumer. The executive added that companies would have to bear the burden of the transition and adjust the delta accordingly.
In its letter, the association also pointed out that the transition of input tax credit (ITC) on closing stock is a cause for concern for trade, and distributors and retailers could face financial strain. “We request a proactive framework to ensure rightful credit of ITC so that trade partners are not unfairly burdened,” the letter said.
It also highlighted that aerated beverages, which are placed in the highest slab, see higher consumption at lower price points of Rs 10 and Rs 20. The association argued that it is the lower-income groups who consume these products at the lower price points and requested that the category not be treated as sin goods, as demand could then take a hit.
