Post the corporate tax bonanza announcement by the government, Goods and Services Tax (GST) remains a dampener for consumer goods companies in general and biscuit-makers in particular, as the fitment committee has rejected their demand to cut tax rate from 18 per cent to 12 per cent.

Several companies have sought a reduction in GST to boost sales. Tax cuts were requested on bakery products, breakfast cereals, fruits and vegetables, mineral water and ready-to-eat packaged items, among several other food products.

The higher tax has been a matter of concern for biscuit-makers since 2017, when the GST regime came into effect. For instance, biscuits priced below Rs 100 a kg were taxed at 12 per cent before GST implementation. This category largely includes affordable biscuits that account for 25 per cent of all biscuit sales in India, and are typically priced under Rs 10.

When the GST was being implemented, companies had expected the tax to be fixed at 12 per cent for premium biscuits and 5 per cent for the lower-priced ones. However, under the GST regime, all biscuits were brought under the 18 per cent tax structure, forcing companies to increase prices, affecting sales. India’s biscuit market is estimated at over Rs 31,200 crore.

Despite the demand from companies to reduce cost since 2017, the fitment committee decided not to tinker with the present GST structure on the pretext of revenue loss, it rather hiked the price of caffeinated drinks.

The push for lower tax rates comes amid a slowdown in consumer demand, largely aggravated by a slump in rural consumption where consumers are holding back on purchases of essentials such as household products and staples.

“We expect Q2 and Q3 of FY20 to see a further slowdown in revenue growth of our coverage universe to about 5 per cent. This will make FY20 the slowest year of growth for FMCG in 15 years. The last period of such low growth was 2000-03,” Credit Suisse said in a recent report.

In this context, the corporate tax deduction will help companies to contain cost, but there is hardly any scope to reduce price.

“When Rs 2 pack biscuit is not selling, how can we reduce the price? The slowdown is because things are not selling. Yes, the corporate tax will reduce the burden on companies, but how will it force people to buy more, when there is no money in the common man’s pocket?” asked a senior marketing manager from Britannia.