Impact of gst on agricultural sector is foreseen to be positive. Agricultural sector is the largest contributing sector the overall Indian GDP. It covers around 16% of Indian GDP. The implementation of GST would have an impact on many sections of the society. One of the major issues faced by the agricultural sector, is transportation of agri products across state lines all over India. It is highly probable that GST shall resolve the issue of transportation. GST may provide India with its first National Market for the agricultural goods. There are a lot of clarifications which need to be provided for rates for agricultural products. Special reduced rates should be declared for items like tea, coffee, milk under the GST.
There are certain food items like rice, sugar, salt, wheat, flour which are exempted from CENVAT. Under the state VAT, cereals and grains are taxed at the rate of 4%. Agricultural products go through a lot of licensing,no of indirect taxes(VAT, excise duty, service tax) under the current tax laws.
State VAT is currently applicable to all the agricultural goods at each state, it passes through prior to final consumption. Although there are certain exemptions available from state VAT for certain unprocessed food products like meat, eggs, fruits, vegetables etc.
A scheme for the promotion of National Agricultural Market(NAM) is introduced by the central government.Involving all the farmer and traders in the regulated markets with a common e-commerce platform for a transparent,impartial trade of agri-commodities can be termed as National Agricultural Market. Due to the different state VAT and APMC(Agricultural produce market committee) law’s, implementation of NAM scheme would be challenging.
GST is crucial for creating a path regarding the successful implementation of NAM. Most of the indirect taxes levied on agricultural products, would be subsumed under GST. GST would provide each trader, the input credit for the tax paid on every value addition. This will create a transparent, hassle free supply chain which would lead to free movement of agri-commodities across India.
Most of the agricultural commodities are perishable in nature. An improved supply chain mechanism due to GST, would reduce the time taken for inter-state transportation. Benefit of reduction in time would be passed on to the farmers/retailers. Some states in India like Maharashtra, Punjab, Gujarat, Haryana earn more than Rs 1000 crores from charging CST/OCTROI/Purchase Tax. GST would subsume all the above taxes. Hence these states would need to be compensated for the loss of revenue.
GST is essential to improve the transparency, reliability, timeline of supply chain mechanism. A better supply chain mechanism would ensure reduction in wastage and cost for the farmers/retailers. GST would also help in reducing the cost of heavy machinery required for producing agricultural commodities. 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.
India’s milk production in 2015-16 was 160.35 million tonne, increased from 146.31mt in 2014-15.Currently only 2% VAT is charged on milk and certain milk products but once GST is implemented with expected rate of 12%, there is going to be a hike on price of Milk. Tea is probably one of the most crucial item in an indian household. Price of tea, might also increase due to increase in GST rate from the current VAT rate of 5-6% with assam and west bengal with the exception of 0.5 and 1%.
An increase in cost of few agricultural products is anticipated due to the rise in inflation index for a brief period. Though, implementation of GST is going to benefit a lot, the farmers/ distributors in the long run as there will a single unified national agriculture market. GST would ensure that farmers in India who contribute the most to GDP, will be able to sell their produce for the best available price.