Goods and Services Tax (GST) on the agro and food industry is not just a change in tax, but a corporate game-changer, according to Raman N V, director, Grant Thornton India LLP.
He pointed out,“The GST would be a ‘consumption tax’ levied on the supply of specified goods and services. Its introduction would eliminate the need for different legislations.”
According to him, India has adopted a unique dual model for GST as it replaces the existing multi-layered indirect tax structure. It would bring in CGST and SGST which would be administered under separate legislations with no cross-credits available amongst these levies. IGST would be levied under separate legislation and would be fungible or mutually interchangeable. “We expect this implementation in 2017 on a full scale,” he said.
In a presentation at a recently-held one-day seminar organised by the Bangalore Chamber of Industry and Commerce, Raman highlighted the topic ‘Impact of Proposed GST in India – On Agro and Food Industry.’
The rate of GST is expected to be in the range of 18 to 20 per cent. Currently, the industry pays service tax of 14 per cent, excise duty of 12.5 per cent and VAT at 14 per cent. “Therefore, GST is not an expensive duty. For mass consumed food products, it is likely to be lower than the average GST rate,” he said.
However there are ambiguities on levying higher rate of GST on processed food. For instance, the agricultural produce which is expected to be covered in GST, would impact the input cost. It would also create the requirement to re-evaluate the ‘Just in Time Supply Models.’ It will analyse job work / contract manufacturing/ outsourcing models. Further, it would also assess how the inter-state and intra-state GST credits flow, especially for supplies effected from one state to another. “So long VAT had not been levied for job works, but now GST will include this and therefore corporate India could deliberate if outsourcing is required at all,” said Raman.
While agriculture per se might be exempted from the levy of GST, it is likely to exclude dairy farming, poultry farming, stock breeding and rearing of seedlings or plants. Further the issue of cultivation as part of contract farming might be open to interpretation as to whether it would still be under agriculture, going by the proposed definition of an agriculturist.
Now the benefits of GST regime is set to replace multiple state and Central levies with a single tax system which would ease doing business in the food processing sector. Since these two taxes would be subsumed under the dual GST, it is seen to be advantageous for the sector to streamline product prices. ”The seamless flow of input credit on services will be available to offset tax on goods. This will help the sector to design tax optimised structures with high logistic cost of short shelf life goods, storage and warehousing besides other operating and administrative costs,” he said.
The present issues on classification in state VAT for various forms of food are expected to be resolved with GST. Similarly, the current conflict on excise classification due to slight change in product composition would also end. However, the key concerns are on the uncertainty of current exemptions which are being enjoyed by service providers in agriculture and support activities, according to Raman.