MUMBAI | NEW DELHI: A host of grocery items and household and personal care products will now cost less as the goods and services tax (GST) on several consumer goods segments has been lowered from the existing 28%.
On Friday, the Goods and Services Tax Council recommended reduction of levy on categories including detergents, shampoo, deodorants, cosmetics and chocolates to 18%.
Most manufacturers cheered the move, saying they would pass on the benefits to consumers by either reducing the price tags or increasing the quantity being sold at the existing price. The price correction is expected to be sharper in those segments where the pre-GST tax was higher than 18%.
"HUL will be delighted to pass on the net benefits at the corporate level to the consumers," said a spokesperson for FMCG major Hindustan Unilever Limited. A spokesperson for confectionary maker Mondelez said, "We are delighted with this very progressive step that the government has taken to reduce GST rates for products like ours that are consumed by the masses. We have always believed in keeping the interest of our consumers in mind and will pass on the benefits to them."
Before GST was rolled out, several segments, including shampoo and toiletries, were taxed at anywhere between 15% and 24% — which included VAT and state tax — while chocolates and detergents attracted taxation at 26-27%. Now, a bulk of these products could see price revision — similar to the round of price cuts that happened in July after the government urged the industry to pass on to consumers the benefits from tax-rate reduction effected by the GST regime.
"We will pass on the benefits to consumers, and we expect that this will result in higher consumption," said RS Sodhi, managing director of GCMMF, which sells products under the brand name Amul. In the country's largest home care segment — laundry —companies are expected to either increase grammage or reduce prices.
"Prices will definitely come down as detergents were taxed at about 27% before GST, which was marginally increased to 28%. Now, with the product category seeing a sharp reduction, it will be passed on to end consumers," said Sushil Kumar Bajpai, president at RSPL, which sells 'Ghari', the country's largest detergent brand.
Several companies said they are awaiting the list of items on which GST has been revised, but added that they intend lowering prices. "The decision of moving daily essentials items to 18% GST rate will result in higher consumption, as the benefits of lower GST rates will be passed on to the end consumer and will make these items more affordable," said Vivek Gambhir, managing director of Godrej Consumer Products Limited.
Ramesh Jayaraman, managing director of Confectionery industry leader Perfetti Van Melle, said, "We will need time to work out the next course of action in terms of pricing, after seeing the fine print. In a category like ours, with low price points, it's anyway difficult to increase prices. When the GST slabs went up, we couldn't increase prices either, for the same reason."
Although GST legislation includes an anti-profiteering clause, requiring companies to pass on the benefits of lower taxes to consumers, companies are also seeking clarity on the latest revision. Jean-Christophe Letellier, managing director at L'Oreal India, said the company will wait for an official communication from the government on the list of categories impacted by the change in rate. However, there are few segments, such as shaving cream, that attracted 15% tax before the new tax regime, but saw it surge to 28% in July.
"More than price reduction, we will increase retailers margins once again as it had shrunk in the last few months since we couldn't take price increase after GST," said Vimal Pande, chief executive at Maja Healthcare, which sells toiletries under the Vi-John brand name.
