GST Reforms: Clarity for Manufacturers, Challenges for Distributors
The government's new GST circular clarifies the treatment of trade discounts and credit notes but increases compliance and cash-flow pressure on FMCG distributors. While manufacturers benefit from certainty, distributors struggle with excess input tax credits and call for a refund mechanism. Industry experts await further legislative changes.
- Country:
- India
The government's latest circular on GST reform brings clarity to trade discounts and credit notes, but shifts compliance responsibilities and cash flow pressures onto FMCG distributors, industry experts report.
According to Vedika Agrawal from LexVed, financial or commercial credit notes are exempt from requiring distributors to reverse input tax credit (ITC), allowing manufacturers to maintain their past tax payments. However, these exemptions leave distributors with unused ITC balances, reducing working capital.
The GST Council's recent rate rationalization to a two-tier structure has not alleviated disputes despite its intent to reduce prices. Distributors, represented by the All India Consumer Products Distributors Federation, have urged clear guidance on ITC treatment and stressed anomalies like detergent tax disparities.
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