The Impact Of Goods And Services Tax On Fast Moving Consumer Goods In Bangalore

Abstract

 Goods and Service Tax (GST) is an indirect tax which is levies on the purchases of goods and services. It levies the tax at each level of production and distribution process until goods delivered to final consumers. Therefore, GST helps to detect tax evasion easily. Despite of benefits, certain drawbacks are occurred due to the introduction of GST. Hence, this study has investigated the impact of tax reforms with reference to GST (Goods and Services Tax) on FMCG consumers. Primary data was considered for this study.

For collecting the data questionnaire was framed and distributed among 400 respondents. The data analysis reviled that 60% of the respondents strongly agreed that after implementation of GST affects the spending behavior and 59% of the respondents strongly agreed that GST has a negative impact on the price of personal care product. Hence, this study provides the information about the impact of Goods and Services Tax (GST) on fast moving consumer goods with respect to personal care products targeting lower income people and lower-middle-income people.

Key words: Goods and Services Tax (GST), Fast Moving Consumers Goods (FMCG) 

Introduction Tax is the important source of revenue for the government. The government used tax amount for expenditures. Apart from that, it helps to reduce the gap between higher income and lower-income people. Tax is also considered as a social and economic policy tool because the tax amount collected by the government can be utilized as a tactic to decrease income inequality in the country. Mainly, the tax is classified into two different categories i.

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e. direct taxes and indirect taxes. Direct taxes are directly paid by the individual to the government based on the income earned by the individuals or organizations. The major important direct taxes are income tax, inheritance tax, wealth tax and corporate tax. On the other hand, indirect taxes are collected from producing or sell goods and services. These types of taxes are paid by the manufactures or sellers initially and the final burden of the tax will be paid by the consumers. The major important indirect taxes are sales tax, purchase tax; value-added tax, luxury tax, entertainment tax, surcharges and cess etc but after implementation of GST these multiple taxes are subsumed into the single unified tax system (Husin, 2016). 

Goods and Service Tax (GST) is an indirect tax which is levied on the purchases of goods and services. Introduction of GST in India is one of the greatest reform in India. Goods and services tax replacing multiple taxes in both central and state level. GST is a fair tax because it levied the tax at every level of production and distribution process until goods delivered to final consumers. Therefore, GST helps to detect tax evasion easily. According to international monetary fund (IMF), the efficiency of the tax system will increase after the implementation of GST and increases revenue to the government. It is an opportunity for the government to decrease the corporate and personal income tax rate due to the introduction of GST. Individual’s investment, savings and willingness to work will affect due to high-income taxes and high corporate taxes leads to investing less in the business. Regardless of personal income taxes and corporate taxes, GST does not tax on investment and savings. 

Hence, GST strengthens investment and savings, encouraging entrepreneurship and finally increases economic pliancy of a country. Introduction of GST will affect the spending behavior of the consumers due to price variation and almost 2/3 of total spending representing the consumer spending in the economy (Shafie Mohamed Zabri1, 2016). In the financial year 2006 – 07, the first time proposal made for the introduction of GST. GST bill was passed in Lok Sabha on May 5, 2014. After that, on May 2015 the constitution bill for GST passed in the Lok Sabha. On August 2015 28% of GST rate capping insists by Congress and specified in the constitution amendment bill and finally, on 1st July 2016 GST was implemented in India. GST impacted positively on sectors like automobile, FMCG sector, tourism industry and start-up business while negative impact on sectors like telecom sector, hospitality and e-commerce (Sunil, 2016). Goods and Services Tax (GST) implemented recently in India. 

Due to the introduction of the GST price of the goods and services are varied. The prices of some products are increased due to the introduction of GST which is essential in daily life. Hence, it is a burden to the lower income people and lower-middle-income people. The main objective of this study is to investigate the impact of Goods and Services Tax (GST) on fast moving consumer goods with respect to personal care products targeting lower income people and lower-middle-income people. Background Study of FMCG Sector Fast moving consumer goods sector is the fourth largest sector in the Indian economy. It is one of the fast growing sectors in Indian economy. Fast moving consumer goods are called as consumer packaged goods. FMCG sector consisting of households and personal care products 50% which is the leading segment, health care 32%, food and beverages with 18%, personal care products with 22%. These products purchasing at a regular interval time by the people. 

It is anticipated that the FMCG market in India to reach CAGR (compound annual growth rate) of 20.6% and reach US$ 103.7 billion by 2020 from US$ 49 billion in 2016. From last few years, the FMCG sector is growing fast in rural areas when compared to urban areas. It is anticipated that rural FMCG market to reach CAGR (compound annual growth rate) of 14.6% and reach US$ 220 billion by 2025 from US$ 29.4 billion in 2016. Classification of FMCG Sector Food and Beverages (18%) Health beverages, Staples/ Cereals, Bakery Products, Snacks, Confectionaries, Tea/Coffee/Soft Drinks, Processed Fruits & Vegetables, dairy products & Branded Flour , Health Care (32%) Over the counter products Ethical’s Households and Personal Care (50%) Oral Care, Hair Care, Skin Care/Deodorants, Perfumed, Feminine , Hygiene & Paper Products, Fabric Wash Households Clearness Figure: 1Segmentation of FMCG Source: India brand equity foundation, January 2016. 

The retail market in India is anticipated to achieve US$ 1.1 trillion by 2020 from US$ 672 billion out of 2016, with present business anticipated that would reach at 20% to 25% per annum, which is probably going to help revenue of FMCG sector. In 2016-17, income for FMCG area have achieved US$ 49 billion and it is anticipated to reach at 9% to 9.5% for the FY18 consumption expenses is anticipated to grow around US$ 3,600 billion by 2020 from US$ 1,469 billion out of 2015. It is anticipated to grow Rs 159.3 billion (US$ 2.5 billion) of direct selling in India by 2021. For food processing and single-branded retail, the government allowed 100% of the foreign direct investment. This would support business, supply chains, and furthermore, give high discernability to FMCG markets in sorted out retail advertises, reinforcing customer spending and empowering more items to launch. This sector witnessed the foreign direct investment- inflows of US$ 13.07 billion, between April 2000 and December 2017. 

Literature Review GST is not a new tax system. Many countries implemented GST but in India implemented GST on 1st July 2017. Many researchers did the study about GST across the world. Here are the some researcher’s opinions about GST. (Amanuddin Shamsuddin, 2014) identify the level of acceptance and awareness towards implementation of GST in Malaysia. The findings of the study were very few respondents have awareness about GST and the moderate level of acceptance towards implementation of GST. (Ibrahim2, 2011) conducted the study to identify the spending behavior among middle-income earners in Malaysia and the findings of the study were 51.3% of the respondents agreed that due to the implementation of GST spending behavior was not affected. (Shafie Mohamed Zabri1, 2016) conducted the study on awareness of the GST and to study the relationship between spending behavior of customers and understanding of the GST and the findings of the study was the level of awareness of GST is very low and acceptance of GST is at the moderate level in Malaysia. 

Furthermore, (Rosiati Ramli, 2015) investigated the compliance cost of SME’s and readiness of GST by SME’s. The findings of the study were most of the SME’s are not prepared for implementation of GST and they are not getting detailed information from the concerned tax authorities. (Nurulhasni Shaaria, 2015) investigated on student’s awareness and knowledge of GST implementation in Malaysia and the finding of the study were 90% of the respondents were aware of the implementation of GST. The limitation of this study was considering only UG students for the survey. (Husin, 2016) did the research to identify the level of acceptance of GST implementation in Malaysia and the finding of the study was the acceptance level of GST implementation by academic UITM staff was at the moderate level. 

The acceptance level of GST will increase only when the government assures that they will not increase the price of the goods. (Soliha sanusi, 2015) did the study on governance of GST from overseas practices like risk management, governance, processing and reporting. This paper puts an attempt to explore the impacts, implications and policies of the introduction of GST in India. It is concluded by saying that due to the implementation of GST in Malaysia they gained certain benefits. (Ibrahim2, 2011) the study was focused to identify the consumer readiness perception and acceptance of GST. Primary data was considered for this study and questionnaire was distributed among the middle-income earners. More than 51% of the respondents agreed that their consumption behavior was not affected. 

The author concluded that due implementation of GST people‘s consumptions behavior would change significantly. (Dash, 2017) did the study on the positive and negative impact on Indian economy after implementation of GST in India. The author provides the significant tax structures before GST implementing in India i.e. what are all the taxes levied in central and state level. For this study, secondary data is considered. The finding of the study is most of the manufacturing industries may incur the loss. The important benefits of GST are generating employment opportunities, increase in exports and manufacturing activities. The positive impact of GST is the reduction in inflation due to the elimination of cascading taxes and the negative impact of GST is high tax rates on the service industry. It is concluded that GST is a one of the important reform in order to reduce the black money after demonetization. Research Methodology Primary data was considered for this study. 

For collecting the data questionnaire was framed and distributed among lower income earners and lower-middle-income earners in Bangalore city. As per the World Bank whose income is less than 1,005 dollars considered as lower income earners and whose income in between 1,005 dollars and 3955 dollars considered as lower-middle-income people. 400 sample sizes were considered and respondents were requested to answer the question based on the five-point Likert scale. Reliability Analysis Reliability test is conducted to identify the stability and consistency of the questions. This test is done for both the pilot study and the actual study. According to (Anon., 2016) the reliability of the measures is higher if Cronbach’s Alpha has the value near to 1.if anything beyond 0.6 of Cronbach’ alpha is considered has poor, 0.7 is considered acceptable and 0.8 is considered has Good. 

The Cronbach’s Alpha for pilot study is .721 respectively. Which shows the internal consistency and it also indicates the design of the questionnaire is good and reliable. The questions framed for the survey was easily understood by the respondents. Hence, it is suitable for the actual survey where the Cronbach’s Alpha for the actual survey is .724 which is acceptable. Regression Analysis Multiple regression is helpful to estimate the significance of dependent variable (dependent variable is also called as outcome variable) established on the significance of two or more independent variables (independent variables are also called as predictor variables). It also helps to find out the overall fit of the model and variance explained to each independent variable according to its contribution. 

Conclusion On 1st July 2017 GST implemented in India many researchers has been extensively studied on this topic but the present study was focused on the impact of Goods and Services Tax (GST) on fast moving consumer goods with respect to personal care products targeting lower income people and lower-middle-income people. The data analysis reviles that 60% of the respondents strongly agreed that after implementation of GST affects the spending behavior and 59% of the respondents strongly agreed that GST has a beneficial in long-term. Meanwhile, R square value is 0.748, 74 % of the variance in GST price was explained by the selected independent variables and the correlation coefficient for price and spending behavior is 0.814 which indicates the strong relationship between the variables. In conclusion, the prices of the FMCG personal care products are increased due to the implementation of GST but in long-term, we can expect beneficial from GST. The study has been restricted to Bangalore region and considered only lower middle-income earners and lower-middle-income earners. The presented information was based on the knowledge of the individual and the data provided by the respondents. The study was concentrated only on personal care products so further interested individuals may study on household’s articles and target other income categories. Acknowledgment I am grateful to Prof. Achala P Bhatt and Prof. Reshma K J for their valuable suggestions and comments. 

References

1.  Amanuddin Shamsuddin, 2014. Educators’ awareness and acceptance towards goods and services tax. International Journal of Business, Economics and Law, 4(1), p. 10. Dash, A., 2017. positive and negative impact of gst on indian economy. 
2. International Journal of Management and Applied Science, 3(5), p. 4. Husin, Z., Mohammad, F., and Nur, S., 2016. 
3. The Acceptance Level on GST Implementation in Malaysia. Gading Journal for the Social Sciences , p. 6. Ibrahim, 2011. The Impacts Of Goods And Services Tax (GST) On Middle Income Earners In Malaysia. 
4. World Review of Business Research , Volume 1, p. 15. Nurulhasni Shaaria., Alizah Ali., and Noraini Ismail., 2015. 
5. Student’s Awareness and Knowledge on the Implementation of Goods and Services Tax (GST) in Malaysia. 
6. Procedia Economics and Finance, p. 11. Rosiati Ramli., Mohd Riazal pali.,Norul Syuhada Abu Hassan., Ahmad Fariq Mustapha., and Ahmad Fariq Mustapha., 2015. 
7. Compliance Costs of Goods and Services Tax (GST) among Small and Medium Enterprises. Jurnal Pengurusan , p. 15. soliha sanusi., Normah Omar., and Zuraidah Mohd Sanusi., 2015. 
8. goods and services tax (GST) governance in the malaysian new tax environment. procedia economics and finance, p. 7. Sunil., and Neha Rani., 2016.
9.  An Overview about the Impact of GST on Various Sectors of Indian Economy. The International Journal Of Business & Management , 4(10), p. 5. Zabri, S. M., Ahmad, K., and Tham, G. H., 2016. 
10. The Implementation of Goods and Services Tax (GST) and Changes in Spending Behavior among Malaysian Consumers. International Business Information Management Association , p. 9.