The GST Debate

Current rates Pitched too high for Food Processing Sector :-

Coming July, the GST will finally be on its way and ready for implementation. After much debate and discussion, it is not as perfect as originally set out on paper, yet it is being acknowledged and hailed as one of the most transformational reforms introduced since 1991.

The impact of the new GST regime on agriculture and farmers can be looked at from three different perspectives: (1) is GST going to be inflation-neutral, given that food has 45% weight in the consumer price index (CPI); (2) is GST going to be revenue-neutral, and whether some states will lose revenue income and how they will be compensated on the losses, and (3) does the GST give some incentives and subsidies to link farmers with the food processing industry, so as to mitigate their market risk, augment income, and facilitate job creation in rural areas?

There are other concerns as well. Fertilisers, will now attract 12% tax under GST, up from 0-8% VAT which they currently attract. This would have a direct impact on the prices of fertilisers, which would then likely go up by 5-7%, unless the government decides to absorb this by elevating subsidy. Pesticides will also be facing steep taxes as they have been placed in the 18% slab, up from the 12% excise at present in addition to VAT of 4-5% in some states. Tractors are also a crucial part of the agriculture economy.

Major tractor components and accessories are placed in the 28% slab, while tractors themselves are categorised in the 12% slab, up from zero excise and VAT of 4-5%. It is not very clear yet whether the input credit claims to cover taxes already paid on components and accessories will cross the final tax rate of 12% on tractors, and therefore there could be a scope for reduction in tractor prices; or the tax on components may be rationalised and the applicable rate brought down from 28% to 12%. All these and more are creating some amount of confusion, and will have to be clarified in days to come.


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Food Marketing & Technology is a monthly magazine published by L.B. Associates Pvt Ltd

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