Consumer Goods Firms To Compensate Distributors For GST Transition Losses
Companies promise to compensate distributors for losses during transition to GST.
Most consumer goods companies will compensate distributors for losses they may incur during the transition to the Goods and Services Tax.
Companies like Marico Ltd. Colgate Palmolive India Ltd., Glaxosmithkline Consumer Healthcare Ltd. and Emami Ltd. have emailed distributors and retailers saying that they will reimburse any additional taxes on the existing inventory.
Distributors feared losses on the stock on two counts. One, if the GST rate is lower than existing taxes; and two, if companies refused to provide invoices with details of central taxes paid, essential to claim a refund.
A BloombergQuint survey of small businesses in Delhi and Mumbai had found that 52 percent of them expect the prices to rise under GST. Nearly 38 percent expected losses on the transition stock while 33 percent were not sure.
The All India Consumer Products Distributors’ Federation confirmed that they have received emails from most fast-moving consumer goods companies saying that companies will reimburse losses bulk traders may incur on the existing stock. Emami also confirmed to BloombergQuint that they have sent out such letters to distributors. Colgate Palmolive India, Marico and Glaxosmithkline Consumer Healthcare didn’t respond to BloombergQuint’s emails.
Companies have also asked distributors to maintain regular inventory during the transition period so that consumers do not suffer due to shortage of stock, according to the emails.
Distributors has sought higher margins from consumer goods companies, saying their expenses will go up after GST by one percent of the total turnover.
Expenses will be higher since we have to upload data on the GST Network, buy a software to connect with it and hire an accountant thrice a month instead of once a year.Dhairyashil Patil, National President, All India Consumer Products Distributors’ Federation
Demonetisation-Like Issues
Brokerage UBS Securities India said consumer companies with a high dependence on wholesale trade could face demonetisation-like issues and would take time to rebound.
“We believe, the decrease in trade channel inventory should impact diversified segment players more than single-segment players,” Suchita Sachdev, analyst at UBS Securities India, said in an interview with BloombergQuint.
Trade channel inventory correction would also impact consumer goods companies which are more skewed to the rural consumer due to access and logistics costs.