MUMBAI | NEW DELHI: Prices for most groceries, household and personal care products will remain unchanged for at least six to eight weeks after the goods and services tax is put in place on July 1 as companies aren’t too sure how the new levy will impact their cost of operations.
Several products including cookies, toothpastes, soaps and hair oils will be taxed at 18% under GST compared with about 22% in the current indirect tax structure of excise duty and value-added tax. However, detergents, shampoos and skincare products will attract a higher 28% levy.
“While our intent is to pass on the benefits of lower GST in the relevant categories where rates are coming down to consumers as soon as it is feasible, there are still some open issues where we need clarity such as how area-based exemptions will be handled, that will impact pricing decisions,” said Godrej Consumer managing director Vivek Gambhir. No price increases are planned in categories where GST rates will be going up, he said.
Retailers and distributors suggest that products of Hindustan Unilever, Marico, Dabur, Colgate, Procter & Gamble and Britannia will carry the same price tags until August.
“There are hardly any changes in either price or grammage for the new stock that will hit the market from next week onwards,” said an HUL distributor who didn’t want to be named. As a policy, HUL doesn’t comment on price changes.
In the run-up to GST, several companies and retailers have been either halting supplies or plan to bill limited stocks in the last few days of the month, a period when companies typically push more products and primary shipments to meet quarterly sales targets.
While GST legislation includes an anti-profiteering clause requiring companies to pass on the benefits of lower taxes to consumers, companies say they have to gauge the impact of input tax credit, if any, on raw materials.
“We can’t change price points such as Rs 5 and Rs 10. The only option would be to reduce or increase weight, but it won’t be based on just GST on final products,” said Mayank Shah, group product manager at Parle Products. “We need one-two months to see if the new tax has any impact on the cost of products and what will be the credit on input to offset them.”
Companies want to avoid knee-jerk reactions although many have factories in excise-free zones and clarity is awaited on the application of GST to goods made there.
“Most companies want to avoid the confusion of having two price tags for the same product with different pre-and post-GST rates,” said another distributor with multiple clients. “While companies have agreed to compensate for any loss of margins due to the difference, there will be unnecessary paperwork.” Bisleri said altering prices by Rs 1-2 doesn’t really work for the consumer.
“A minimum price change of Rs 5 in a category like ours is what will benefit the consumer. So, we are waiting for GST issues to settle down first before deciding on pricing changes,” said Bisleri chairman Ramesh Chauhan. “We will observe market and trade dynamics for at least a month or two before taking any calls on pricing changes.”