Impact of GST on Agricultural Sector

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Narendra Modi-led government did not expect a smooth sail for the proposed GST bill; nor did they expect this much of opposition either.

It is 63 years since the first GST regime came into being in France. Many countries followed suit with varying duty structure. It took 24 years from the recommendation of Raja Chelliah to have tax revision. The existing rate of GST in is not uniform worldwide (Australia 7%, Japan 8%, Singapore 5%). The GST in India is high, but unlike other countries, GST is not uniform for all products, but there are six slabs. (Originally four slabs were proposed, but later, two more slabs – 0.5% for uncut diamonds and 3% for gold was added).

And mysteriously the biggest revenue earners liquor and petroleum products are outside the purview of GST.

Impact of GST on agricultural sector

The impact of GST on the agricultural front, the biggest contributor (16%) to India’s GDP seems to be more or less brighter. The transportation, logistics, and preservation are the significant value additions for agricultural produces. The time factor of production centre to the consumer is cut down.

For the first time, the market for agricultural products touches a national level, but no clarity on GST for tea, coffee, milk, etc. is ready yet. Present tax exemption under CENVAT for rice, sugar, salt, wheat, flour will not be applicable under GST. Also, the concessional VAT under state law of 4% for cereals and grains will be taxed higher. The exemption enjoyed for unprocessed food products like meat, eggs, fruits, vegetables, etc. under state VAT also would cease to be so.

Due to the different state VAT and APMC (Agricultural produce market committee) laws, implementation of centre Government’s NAM (National Agricultural Market) scheme would be challenging in the wake of GST. Equally challenging would be the emerging e- commerce of agricultural commodities.

The adjustment of indirect taxes in the GST will create a transparent, hassle-free supply chain on pan India basis. However, present earning of state governments on account of CST/OCTROI/Purchase Tax will be curtailed. (Maharashtra, Punjab, Gujarat and Haryana stand to lose more than Rs. 1000 crores in this regard).

The ease, with which agricultural goods are transported between States, as well as the convergence of taxes under GST, may be advantageous in a National Agricultural Market.

A better supply chain mechanism means a reduction in wastage, time and cost. The agricultural machinery would cost less after implementation of GST. However dairy farming, poultry farming, and stock breeding which are kept out of the definition of agriculture and taxable under the GST. Fresh milk with zero GST is a welcome sign. The tea price rise would affect the household budget by at least 5%.

The single unified national agriculture market would be beneficial from an overall perspective. But the fear of inflation grips the nation. GST would ensure that farmers in India, who contribute the most to GDP, will be able to sell their produce at a higher price. An agriculturist, for the purpose of agriculture, is not required to register under GST.
Under the model GST law, dairy farming, poultry farming, and stock breeding are kept out of the definition of agriculture. Therefore these will be taxable under the GST. The main impact of GST on agriculture is that it would bring in the inflation.

With currently 4% VAT being increased to 8% on many food items including cereals and grains as the exemption under VAT is limited to unprocessed food. Consumer Price Index (CPI) would be up due to inflation of food products temporarily. Over 2000 items right from ‘salt to camphor ‘were scrutinised to arrive at the GST roll out on 1 July 2017.
As usual the ordinary people are the worst affected.

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Read more on the latest GST tax rates in India.

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