Why HUL Is Yet To Reduce Detergent Prices After GST Rate Cut

If there’s one thing that’s been constant about GST’s recent implementation in India, it’s the government’s insistence that companies pass on reduced tax rates and GST-led cost efficiencies to consumers. The soon-to-be-set-up anti-profiteering body is tasked with the same purpose.

Which is why it’s surprising that 14 days after lower GST rates came in to effect, India’s largest consumer goods company Hindustan Unilever Ltd. has yet to cut prices of its detergents and dishwashing soaps. These two categories were among over 200 that saw a cut in GST rates — from 28 percent to 18 percent — at the last GST Council meeting on Nov. 10. The rate cuts were to come into effect five days later.

Invoices shared by a retailer indicate that instead HUL increased the base rate of those particular products to offset the lower tax and keep the retail price unchanged.

BEFORE GST CUT

AFTER GST CUT

As the invoices indicate, the consumer goods maker increased the base price on an 860-ml pack of its Comfort Fabric Conditioner by 8.5 percent to Rs 168.7, keeping the MRP unchanged at Rs 215. The base price of Vim Bar (300 gram) was raised by 15 percent to Rs 17.26, while the maximum retail price remained the same at Rs 22.

When BloombergQuint asked HUL for an explanation, the company said it’s committed to ensuring that all benefits of lower rates are passed on to consumers in the form of lower prices or increased grammage ranging from 7 to 10 percent, and the transition will be completed in the next few weeks. “As an immediate measure... we have advised our modern trade customers (supermarkets, hypermarkets) to pass on the benefits,” the company said. “With reference to general trade (small retailers), we have asked our distributors to communicate… that the benefits that would be accruing to them during the transition should be passed on to the consumers”.

But checks with six retail outlets, mostly mom-and-pop stores, across Mumbai city confirmed that prices refuse to budge. Retailers told BloombergQuint that neither HUL, nor other consumer companies have directed them to reduce prices.

Three other retailers shared similar information – that no company had instructed them to reduce prices.

But the hypermarkets tell a different story.

Reliance Smart Hypermarket in Mumbai Central (East) is offering discounts on products such as shampoos, detergents and chocolates. A Big Bazaar store located in Matunga has also reduced prices of coffee and skin care products.

One explanation for holding on to prices could be that changing MRP stickers on existing stock is a logistical nightmare. But a news report in the Economic Times suggests that the government had permitted companies to affix an additional sticker to declare reduced MRP on items that have seen a GST rate cut. It’s also likely the consumer company would rather increase grammage sold than lower prices.

“The price of the stocks which is already with retailers cannot be corrected as a higher tax has already been paid by them on the product. It will take a few weeks for fresh stock to reach the market which should have lower prices reflecting lower GST rates,” said Sunil Alagh, chairman of SKA Advisors.

For goods already purchased by a trader at a higher tax rate prior to Nov. 10 and sold after Nov. 15, unless a manufacturer is willing to absorb the differential, the trader would not be able to pass on the benefits of lower tax, said Suresh Rohira, partner at tax and consulting firm Grant Thornton LLP.

And if the manufacturer has sold the goods at 28 percent and deposited the tax with the government, it doesn’t have the option to seek a refund if the final sale happens after Nov, 15, Rohira added.

Also Read: GST: Missing Data Points, Lower Revenue Collection And Fiscal Worries