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Impact of GST on India paints market

Abhijit Roy of Berger Paints predicts no major changes to the status quo in India paints market, given no major change in effective rate of taxation under the GST regime.

Chemicals:Abhijit Roy, MD and CEO, Berger Paints and the President of the Indian Paint Association said today that the India paints market would face no major disruption post the implementation of the Goods and Services Tax (GST) regime. As per Roy, paints will be taxed at 28% under GST which is very close to the 29% rate that paints are currently taxed at.A slight reduction in taxes would be welcome for paint companies in the short run given shrinking margins and price hikes due to the same.

As per TechSci Report titled “Global Pigments Market By Type, By Application, Competition Forecast and Opportunities, 2011 – 2021” the global paints and coating industry is anticipated to reach USD 168.5 billion by 2017. Asia-Pacific region was the highest demand generator in this segment, as per the report while paints market in India is set to grow at a robust pace. The implication of a positive effect from GST will be a big relief, both to consumers and producers of paint in India. Given that the price of paints has undergone a hike as recently as March 2017, it would have been very difficult for companies such as Asian Paints Ltd., Berger Paints India Ltd., Kansai Nerolac Paints Ltd., etc. to justify passing on the burden of taxes onto the consumer. However, at the same time, not passing on the burden would result in reduced profit margins for paint companies which would make it difficult for them to re-invest in their business.

The paints industry in India has been suffering from a chronic raw materials problem over the past few years. Titanium dioxide, which is a key raw material, is selling at somewhere between Rs. 140 and Rs. 210 per kilogram as of June 8 2017, up from February 2017 when prices were between Rs. 135 and Rs 200 per kilo. Raw materials account for between 15% and 18% of the total purchase basket of a paint company and the rise in raw material prices, due to high demand from paint companies, is causing serious heartburn to the industry as a whole. The news about GST slightly lowering the effective rate of taxation will come as a welcome respite to most paint companies who will expect this to slightly dampen the effect of the previous rate hike.

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