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GST 2.0 Lapses: FMCG Products Spark Blame Game Between Companies & Distributors

The recent rollout of GST 2.0 has created ripples across the Fast-Moving Consumer Goods (FMCG) sector. Instead of simplifying taxation, as promised, the new policy has triggered disputes between FMCG companies and distributors. Each side is pointing fingers at the other for compliance failures, pricing inconsistencies, and market disruptions. This article explores the major lapses of GST 2.0, their impact on FMCG products, and the unfolding blame game that threatens business harmony in India’s most competitive sector.

Understanding GST 2.0 in the Context of FMCG

The Goods and Services Tax (GST) was introduced in 2017 to streamline India’s tax system. Over time, several updates were made, and GST 2.0 was envisioned as a more transparent, tech-driven, and simplified version of the earlier system. However, while the intent was clear, the execution left many loopholes, particularly in sectors like FMCG where high volume, thin margins, and multiple supply chain stakeholders make compliance highly sensitive.

Major Lapses in GST 2.0 Affecting FMCG

1. Ambiguity in Tax Slabs

   One of the biggest complaints from both companies and distributors is the confusion over revised tax slabs. Certain products like packaged foods, toiletries, and cosmetics were moved between different GST brackets, leading to price volatility. Companies argue that they are forced to re-label and re-price goods frequently, while distributors claim they face losses from unsold inventory.

2. Input Tax Credit (ITC) Delays

   GST 2.0 was supposed to make ITC smoother, but instead, delayed credit claims have disrupted cash flows. Distributors complain that their working capital gets blocked, while companies argue that filing mismatches arise due to inaccurate distributor reporting. This has sparked mistrust in the supply chain.

3. Inconsistent Digital Filing System

   The promise of a seamless online portal turned into a nightmare for many stakeholders. System outages, mismatched invoices, and frequent technical glitches left businesses struggling to meet compliance deadlines. As a result, penalties and interest charges further escalated tensions.

4. Price Discrepancies in the Market

   With unclear taxation rules, some companies updated MRPs swiftly while others delayed changes. This led to dual pricing scenarios where the same product was available at different rates in different regions. Distributors accuse companies of unfair practices, while companies blame distributors for not passing on tax benefits to consumers.

5. Increased Compliance Burden

   Instead of reducing paperwork, GST 2.0 has added more reporting requirements. Distributors, often small businesses with limited tech resources, find it hard to cope. Companies argue that compliance is a shared responsibility, whereas distributors feel the burden is unequally shifted onto them.

The Blame Game: Companies vs. Distributors

The lapses in GST 2.0 have ignited a blame game between companies and distributors. Both parties are trying to safeguard their interests, but the ongoing disputes risk long-term damage to the FMCG sector.

1. Companies’ Perspective

• Distributors are accused of delayed reporting and incorrect filings.
• They believe distributors are not passing ITC benefits to retailers.
• Companies claim that retail-level confusion arises because distributors fail to comply quickly.

2. Distributors’ Perspective

• Companies are blamed for frequent price changes that disrupt inventory sales.
• Distributors argue that ITC delays are caused by system inefficiencies, not their negligence.
• They accuse companies of shifting compliance responsibilities unfairly onto them.

Impact on FMCG Market

The fallout of these disputes has affected every level of the FMCG supply chain:

• Retailers face stock shortages and inconsistent pricing.
• Consumers are confused by fluctuating MRPs on daily essentials.
• Small distributors struggle with compliance costs and shrinking margins.
• Companies risk losing market share due to delayed product reach.

Possible Solutions to Resolve the Dispute

1. Clear Communication from Government

   The government must provide transparent guidelines and ensure that product-specific tax rates remain stable. A dedicated grievance redressal platform for FMCG stakeholders can reduce disputes.

2. Technology Upgrades

   The GST portal must be strengthened with real-time data synchronization, AI-based error detection, and better server stability. Training modules should be introduced for small distributors to ease compliance.

3. Shared Responsibility Model

   Instead of finger-pointing, companies and distributors need a joint compliance model. Shared audit systems and transparent ITC claim tracking can build trust.

4. Consumer-Centric Approach

   At the end of the chain, the consumer must benefit. Ensuring price stability and removing dual-pricing anomalies should be a top priority.

Conclusion

The GST 2.0 lapses have exposed critical weaknesses in India’s tax administration and its effect on the FMCG industry. While companies and distributors continue their blame game, the biggest losers are the consumers and small retailers. To restore balance, a collaborative approach backed by government intervention, technological improvements, and transparent compliance practices is essential. Only then can GST truly serve its purpose of simplifying taxation and strengthening India’s economy.