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GST may favour processed food industry


  Recent decision of Govt of India to implement Goods and Services Tax will be really a boom for traders and consumers. GST envisages single tax without the cumulative effect of multiple taxes, so only value addition is taxed at each point which is a healthy international practice. Even with 3-4 sittings, GST council failed to reach a consensus on critical issues, including the laws that need to be passed in the winter session of Parliament in order to stick to April 1st 2017 the rollout date set by the Centre. It is expected that GST council may finalise the imminent issues during forthcoming meeting by December 2016. Revised taxation, laws, impact on industry and processed food sectors will be made clear by January 2017. The Goods and Services Tax (GST) Constitutional Amendment Bill was passed by Parliament during November 2016 and the Centre plans to roll out GST from April 1, 2017.Once implemented, GST will subsume excise, service tax and other local levies, will create one market for transfer of goods and services across the country. GST will facilitate the Food Processing sector to grow further since this sector shows spectacular growth in the country where annual growth rate is nearly 20 percent. There is huge opportunity for ready to eat and ready to cook food products in the country. In the globalised era women are not confined to the kitchen but they are working as home managers. They started outsourcing ready to eat or ready to cook food products. Annually thousands of new food products are added to this sector.
The impact of recently introduced GST on food processing sector will facilitate sustainable growth in the sector. After the bill is ratified by the states, Parliament will have to pass two legislations — CGST and IGST — detailing the new tax code. This could happen in Winter Session of Parliament in November. Similar tax laws will also have to be passed by the states. The Goods and Services Tax (GST) regime must ensure that processed food does not become costlier as it could have an adverse impact on the nutrition levels of the population as well as farm sector incomes, industry representatives said. Value addition in the food processing sector is a catalyst for agricultural sector since the tariff for food products are at the lowest tax slab; According to National Committee on Food Processing at the Confederation of Indian Industry (CII). Prime Minister suggested that 55% food items used by the poor had been kept out of the purview of the GST. PM stated that the Goods and Services Tax (GST) Bill would raise inflation and hit the common man.
The goods and services tax (GST) will provide India a facelift on the taxation front.
While it is difficult to quantify the impact on various sectors until the government announces the final GST rate, analysts and economists are assuming a standard rate of 17-18%.If that happens, then companies in the manufacturing sector are expected to benefit, while those in the services sector stand to lose. Of course, even though the bill has been passed in the current session, it will be another couple of years until GST is fully rolled out.
In any case, there are various other factors that impact stock prices, and while GST is an important reform, analysts are more keen about indicators of the economic recovery. A four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess, was decided by GST Council. With a view to keeping inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate. The lowest rate of 5% would be for common use items while there would be two standard rates of 12% and 18% under the Goods and Services Tax (GST) regime targeted to be rolled out from April 1, 2017.
The four-tier tax structure has slight modification to the 6%, 12%, 18% and 26% slab that were under discussion at the GST Council last month. The structure agreed is a compromise to accommodate demand for highest tax rate of 40% by states like Kerala. GST would transform Asia's third largest economy into a single market which is expected to boost revenues through better compliance of processes. A four-tier structure for Goods and Services Tax (GST) comprising a lower rate of 6 per cent, two standard rates of 12 per cent and 18 per cent, and a higher rate of 26 per cent with an additional cess for luxury and demerit goods were proposed in the third meeting of the GST Council. Food goods will be exempt from GST as well about half of everyday items will fall in the lower tax slabs. About 70 per cent of the items will incur an 18 per cent tax rate.
Confederation of Indian Industry sources welcomed the move and argued that the rate of GST on processed foods should be kept low or at zero as the country cannot afford to have high taxes, with food inflation already over 6 per cent. They suggested that there should be parity in taxes between processed and unprocessed food products; otherwise the benefit of processed foods will not reach the consumers because of the price difference.
Most of the countries in the world have lower tax on lot of foods, while their inflation is within 2 per cent. Thus India being country with inflation level of 6 per cent could not afford to have higher GST for food items which constitutes major portion of Consumer Price Index. Chicken products, Fresh and Pasteurised milk, fresh meat, fish, prawn and other aquatics, Atta, Maida, flour, suji, besan, etc were exempted from GST. CII suggested for keeping GST rate art zero level on processed food products essential for common man. There should not be tax on all packaged food items bearing maximum retail price (MRP) up to Rs 10, on those processed foods which help to process perishable fruits, vegetables and dairy products and all packaging materials which are inputs to the food processing. In the second category, the CII suggested that GST rate of 8-10 per cent on processed foods consumed by ‘common man’ and on those packaged processed food products which are priced more than Rs 10 but less than 20. In the third category, the government should keep a standard GST rate of 20 per cent for high-end processed food products and all packaged food bearing MRP of more than Rs 20 but less than Rs 20.
The system will change from the current production-based taxation to being consumption-based. Along with bringing about a semblance of uniformity in taxes across states, this is expected to increase efficiency and compliance in the system. The impact on the food industry will affect people living in all sections of the society. However, taxing the food could hold more impact on the poor. But, the exception of food can shrink the tax base as well. As we know that Agriculture is the root of the Indian economy and government has always kept it as its top priority. Food includes various different items such as meat, fish, poultry, grains, cereals, dairy products and milk, confectionary, snacks, candy, etc. In India, many of the food items have been exempted from the CENVAT, while cereals and food grains are liable for the state VAT of 4 percent. While the other unprocessed food such as meat and eggs, coarse grains, fresh fruits, and vegetables come under the restricted state VAT category.
It is expected that after the implementation of the GST, the prices of the agricultural products and services will rise but the products will be able to reach places via trucks in a better way. The implementation of GST will favour the National Agricultural Market on merging all the different taxations on agricultural products. The ease of transportation of the agricultural good will improve the marketing and improve the virtual market growth. The government has also put forward the provision of e-filing the tax returns under the GST regime online via GST portals. GST is one indirect tax for the whole nation, which will make India one unified common market.
GST will replace Central level taxes like excise, service tax, customs duty and state taxes like VAT, CST, Octroi & Entry Tax, Entertainment Tax among, Others, The impact on the food industry will affect people living in all sections of the society with the latest information suggesting that the minimum GST rate will be 18% on all products.
Taxing food could hold more impact on the poor.
It is expected that after implementation of GST, prices of agricultural products and services will rise but the products will be able to reach places via trucks in a better way primarily because of the removal of octroi and entry tax which will significantly reduce the time and hassle of transporting goods across state borders. The implementation of GST will also favour the National Agricultural Market on merging all the different taxations on agricultural products. The ease of transportation of the agricultural good will improve the marketing and improve the virtual market growth.
Due to the nature of GST being a consumption based tax, it will be levied only when food products are sold by the manufacturer. The applicability of likely GST rate of 18% on dairy products is not clear primarily because of the question “Is the dairy industry classified as farming and the dairy products treated as farm produce or as processed foods?”
High rate of GST, if applied, would have direct implication on milk producers. The effect of GST on the food industry is on multi levels. For starters, agricultural produce will become more mobile as trucks carrying perishable commodities will be able to move around without much difficulty. Currently, local produce rarely crosses state borders because of the Central Sales Tax (CST), but once the GST is in place, food from one part of the country can travel places without added taxes. (Source- with excerpts from GST Website, CII and media reports)

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