By Sanket Desai, Tax Partner, EY IndiaAs India completes nine years of the Goods and Services Tax (GST), the reform has emerged as one of the most important catalysts for change in the FMCG sector. Introduced in July 2017, GST replaced multiple central and state indirect taxes with a unified national tax framework, essentially allowing FMCG companies to manufacture, distribute and sell products across the country. The reform not only simplified the tax regime, but also enabled the creation of a truly integrated national market, reducing the supply chain inefficiencies and logistics costs that had historically plagued the sector.One of the most notable achievements of GST is the reduction of tax burden on many mass consumption products. Over the past few years, the GST Council has rationalized tax rates on a range of FMCG products, making essential goods more affordable for consumers while stimulating demand. Such rate rationalization is particularly important for a sector that serves millions of households in urban and rural India, where even small price cuts can have a significant impact on consumption.Equally important has been the government’s continued engagement with industry to address interpretive and operational challenges through clarification circulars and policy guidance. The FMCG industry, characterized by complex trade promotion schemes and extensive dealer networks, faced considerable uncertainty during the initial years of GST implementation. In response, the government issued important clarifications on common business practices such as buy-one-get-one free offers, dealer incentives, secondary discounts, after-sales discounts and GST treatment of commercial credit notes. These clarifications provided much-needed certainty and enabled businesses to structure their commercial arrangements with greater confidence while ensuring tax compliance.The government has also played an active role in resolving concerns related to Input Tax Credit (ITC), one of the most important elements of the GST framework. Various measures have been introduced to strengthen ITC reporting and conciliation mechanisms, which will improve transparency and reduce disputes. The move towards technology-driven compliance has helped create a more robust ecosystem where credit can be tracked and verified with greater accuracy.Another area where substantial progress has been made is product assortment. Given the vast range of products manufactured and sold by FMCG companies, classification-related disputes have long been a source of litigation. Through advance rulings, GST Council recommendations, circulars and clarifications, the government has sought to provide greater certainty on the classification of many consumer products. Although disputes continue in some areas, the overall approach adopted is towards reducing ambiguity and ensuring consistency in tax treatment.The digitization journey under GST has also changed the compliance environment for FMCG businesses. The introduction of e-invoicing has significantly increased the accuracy and authenticity of transaction reporting. By enabling real-time reporting of invoices, e-invoicing has streamlined compliance processes, reduced errors and improved data integrity across the supply chain. Similarly, the e-way bill system has simplified the movement of goods across state borders, replacing the fragmented check-post system that existed before GST. This results in faster movement of goods, shorter transit times, lower logistics costs and improved supply chain efficiency which is vital for an industry that depends on extensive distribution networks and fast inventory turnover.The government has also introduced several procedural reforms to improve the ease of doing business. There have been several simplifications in the GST return filing system, compliance processes have become increasingly digitalised, and mechanisms for interaction with taxpayers have become more streamlined. Importantly, significant steps have been taken to improve the GST refund process through automation, risk-based verification and faster processing timelines. These reforms have helped reduce working capital blockage and improve liquidity, especially for businesses with large credit accumulation and export operations.Looking ahead, the GST framework has reached a level of maturity where incremental reforms can bring substantial benefits to the industry. One issue that is affecting many FMCG companies is the accumulation of unutilized input tax credit arising from inverted duty structures. While refunds for ITC accumulated on account of inputs are currently available, refunds relating to input services and capital goods are unavailable. Given the increasing importance of services, technology, digital infrastructure, warehousing and capital investment in modern FMCG operations, extension of inverted duty structure refund to input services and capital goods will provide meaningful relief. Such a measure will unlock significant working capital, improve liquidity, enhance investment potential and further strengthen the competitiveness of India’s FMCG sector as it enters the next phase of growth in the GST era.