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Indian government is all charged up to set the ball rolling for the Goods and Services Tax (GST) regime which will be implemented from 1st July, 2017. Before the government rolls out GST, it has decided to put several tax slabs on various goods and services. It has kept large number of items under 18 per cent tax slab.
The government categorised 1211 items under various tax slabs. The food and meat processing industry is moved by the new GST rate and has greeted it with thumbs-up. No tax will be imposed on items like fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom, etc.
On the other hand, 5 per cent tax will be imposed on items such as fish fillet, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats.
Whereas, frozen meat products , butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhujia, namkeen, Ayurvedic medicines, tooth powder, agarbatti, colouring books, picture books, umbrella, sewing machine, cellphones will be under 12 per cent tax slab.
“We will benefit from the decision as ready-to-fry products will attract only 12 per cent, against 14.5 per cent that we pay currently in most South Indian States where we operate,” said Srinivas Shenoy, Senior Official, Abad Fisheries. He further quoted that in Karnataka, this rate is further high at 15.5 per cent.
“The fitment of a GST rate of 5 per cent on edible oils as approved is more or less on expected lines. However, a GST rate of 12 per cent on soya bari and 5 per cent on soya flour comes as a disappointment,” said Dinesh Shahra, Founder and Managing Director, Ruchi Soya Industries Ltd. “We hope that the government will relook at the GST rates on texturised vegetable proteins, commonly known as soya bari, and soya flour and bring them to the taxexempt category to promote the use of soya protein to prevent and treat protein malnutrition in the country,” Sharma added further.
However, wheat processors are in a state of bother as 5 per cent GST will be charged on branded wheat products. Hence, there is a big possibility that this tax might hike wheat prices as processors will pass the extra burden to consumers. “Wheat is a staple food for everybody. It is heartening to know that the government has exempted wheat and unbranded wheat products from GST. But given the consumers’ preference for food safety law-compliant products, such a move will be dampener on the branded players.
They will pass on price hikes to consumers,” said A N Gupta, former chairman, Wheat Products Promotion Society. “The rates that we now see may not have any major impact on the retail prices of edible oils. For the industry, the GST rates are more or less in line with the expectations,” said Atul Chaturvedi, President, Solvent Extractors’ Association of India (SEA).
In the recently concluded 16th GST council meeting on 11 June, 2017 which was chaired by Finance Minister Arun Jaitley, government gave a second thought on its proposed GST rates. Welcoming the suggestions from the various business bodies, GST Council has revamped its tax slabs for 66 cases out of 133 representations.
THE MAJOR OUTCOME FOR THE PROCESSED FOOD SECTOR WERE
Composition scheme limit increased to Rs.75,000 from Rs.50,000 for traders, manufacturers and restaurants
Packaged food items including food and vegetables will be taxed at 12% instead of 18%
Cashew nuts will be taxed at 5% instead of 12%
Acknowledging the efforts of the GST Council for rolling out GST, Sachin Menon, National Head, Indirect Tax, KPMG in India said “Under the given circumstances, GST council has done a commendable job by reducing the impact of GST on the common man and maintaining status co on GST rates on the items largely consumed by the upper middle class.
It is like a mini budget short of projection of estimated revenue. It is welcome to see that the education and healthcare sector is out of GST and transportation services are taxed at 5 per cent. However, the telecom services at 18 per cent may touch the raw nerve of the common man, as that is the only significant service that is used by majority of the population in India.”
Though most of the players associated with processed food sector have welcomed the regime, but Indian Beverage Association (IBA) feels that they have been suppressed by it with highest tax slab rate of 28 percent and additional cess of 12 per cent. In its official statement, IBA said “We are extremely disappointed with sweetened aerated water and flavoured water being placed in the highest tax slab rate of 28 per cent combined with an additional cess of 12 per cent.
The effective tax rate of 40 per cent on these products under the GST regime is against the stated policy of maintaining parity with the existing weighted average tax which is significantly below 40 percent. This increase will have a negative ripple effect and hurt the entire ecosystem of farmers, retailers, distributors and bottlers in India.”
The rationale for the GST regime is to bring about a taxation system that propels India’s growth story forward and making products more affordable for consumers and benefit society at large. This increase in tax will further limit the growth of the beverage industry. Moreover, the imposition of cess on non-aerated flavoured water and nutrition drinks is not in line with the stated intentions of levying cess only on aerated drinks, said IBA.
High GST on several processed agro-food items will be a serious detriment for the growth of the industry as food processing is an agro-based industry which makes its purchases in cash and directly from the farmers. If AgroFood processing industry was pushed to the corner, it would adversely impact the farmers.
Sharing his concerns, Rajheev Aggarwal, CEO, Nilon’s Enterprises Pvt. Ltd. said, “If we take an example of pickle, 26 of the 29 states of the country tax pickles at the rate of 5 per cent. Karnataka imposes none, while Rajasthan and Kerala impose VAT on pickles at a higher rate. Add 2 per cent Excise to it and 0.2 per cent Octroi on a weighted average basis.
That totals to 7.2 per cent tax on pickles at present, which the GST Council intends to raise to a whopping 18 per cent.” “The market is so fiercely competitive and price sensitive that the industry operates with a paltry 2 per cent margin. If the proposed GST rate was implemented, the industry, unable to bear the burden, will be compelled to increase the prices of pickle in the range of 10-14 per cent,” S Sivakumar, Divisional Chief Executive, ITC told, “When it comes to processed food, it was always taxed in the paradigm that processed food is rich man’s food and so for a long time processed food industry has been representing to the government that the tax rates must be moderated so that processed food prices remain low and consumers accept processed food.”
“A lot more wastage used to go in along the entire agricultural food value chain. That can be preserved and brought to the market. Unfortunately, that has not happened. Essentially the rates have remained pretty much what they were in the past and a wee bit probably even higher, some at 12%, some at 18%. This essentially would mean that they would remain at the same level they were and therefore we would see more food processing and minimising wastage and potentially expanding the farmer incomes,” added Sivakumar.