GST Impact on the Agriculture Sector in India

The newly implemented indirect tax regime is influencing the agriculture industry and farmers due to the 5 per cent GST rates on agricultural products. It is expected that in the long-term the industry is foreseen to be positive. GST was a long-awaited tax reform since Independence, that was passed by both houses of Parliament including Lok Sabha and Rajya Sabha and came into effect from 1st July 2017 across India.

The GST Council has announced the 5 per cent GST rates on agricultural products. The introduction of Goods and Services Tax (GST) is influencing the common people living in all section sections of society. We have already covered its impact on the lives of the common man and the oil and gas sector.

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• 53rd GST Council Meeting: All types of sprinklers, including fire water sprinklers, will be subject to a 12% GST rate. This conclusion seeks to normalise the past practice based on the present status of the sprinkler.

After the 22nd GST Council Meeting scheduled on 6th October, the new tax rate on pump sets has been reduced to 18 per cent from 28 per cent. The reduction in tax rates on pumps will encourage the confidence level of pump makers in India and is beneficial for the agricultural industry. The market share of pumps in India was valued nearly at Rs 10,000 crores in the financial year of 2016 and it is anticipated that rise to 8 per cent yearly over the coming years.

After passing so many hurdles, pump makers in India have shown tremendous growth, productivity, and quality. After the implementation of GST, various small and medium enterprises (SMEs) stopped manufacturing pumps for some time, as business enterprises were incapable of bearing the expenses under the indirect tax regime.

Presently, the total number of pumps in India is nearly 30 million, out of them 80 per cent of pumps are for agricultural purposes.

Previously, the GST Council announced 12 per cent tax rates on agricultural products and later it was reduced to 5 per cent. Now, the 5 per cent GST rates will apply to all agricultural products. Ananth Kumar, Union Minister for Chemicals & Fertilisers and Parliamentary said: “The farmers of the country would benefit to the tune of Rs. 1261 crores under GST regime. Under the new GST rates announced by the Council, the average weighted MRP will decrease to Rs. 5909/ Ton (or Rs. 295.47/ 50 kg bag) as compared to the existing All India weighted Average of Rs 5923/ Ton (or Rs. 296.18/50 kg bag)”.

However, taxing the food could have more impact on the poor. But, the exception of food can shrink the tax base as well. As we know Agriculture is the root of the Indian economy and the government has always kept it as its top priority. Food includes various different items such as poultry, grains, cereals, dairy products and milk, confectionery, 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 per cent.

Read Also: Goods and Services Tax Impact on Common Man

Agriculture is now again in the eyes of the council as it has been proposed that the various farm items which were earlier out of the taxation circle will now be taken into consideration as the meaning “agriculturalist” has been revised and accordingly the major sources to tax exemptions has been narrowed down to assimilate the trading products which garner the revenue out in the market once produced.

In the GST ambit, the government wishes to include as many products to gain the tax benefit in agri-based foods which will include contract farming, dairy farming, frozen foods, seed raising, and food processing. These agricultural activities are directly attached to retailing as big chains contract with the farmers and take a lot towards their commercial processing. However, the impact on agriculture for the long term is assured to be beneficial along with the improvement in the supply chain.

Meanwhile, the Tea industry feels that it should be exempted from GST. Tea is the most popular thing in India after water and 5 per cent GST rates on branded food grains including mild (i.e. de-husked and split) pulses. Thorat asks, “The idea behind value-addition through processing and creating a brand is to enable our farmers to realize more for the products they are supplying. But if such a branded value-added product is now going to be taxed at 5 per cent, what’s the fun?.”

The new tax regime provides transparency and certainty in the tax system. The main aim of implementing Goods and Services Tax (GST) is ‘One Nation, One Tax, One Market‘. Globally, It is simple, and efficient and will help to improve the economic growth of the country by eliminating a dozen of central and state levies like excise, service, and VAT.

Yogesh Thorat, Managing Director of MAHA-FPC said: “We want to grow beyond doing PSS business. But the 5 per cent GST on branded pulses puts a dampener on the plans, especially of FPCs that are eyeing the retail market to maximise their farmer-members share in the consumer rupee.” He further added that GST’s cost is not just about adding 5 per cent to the product price: “There is also the cost of compliance. One must keep in mind here that FPCs are all in rural areas. For their owners, who are farmers, this is their first experience in corporate dealing. Uploading daily invoices and filing returns thrice every month is certainly a deterrent, just when they have started doing business.”