Impact of GST on Agriculture Sector
Overview
- Impact of Goods and Service Tax (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.
- In India, food items are generally exempt from central excise duty. But many food items, including food grains and cereals, attract State VAT at 4-5%. These items could be subject to tax in GST at a lower rate, which is 5% (combined GST rate), which would certainly make some of these items dearer.
- 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.
- 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. Rates for agro machineries (like machines for cleaning, sorting, seed, grain etc) have been fixed at 5%.
- Under the 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.
Positive Implication
- As per GST Act, an agriculturist will not be liable to registration formalities, to the extent of supply of produce out of cultivation of land.
- All basic agriculture goods (not processed) which are not chargeable under current VAT Laws would not be charged to tax in GST.
Negative Implication
- Shortages in agricultural goods which are imported as domestic produce could not fulfill the requirement are charged with custom duty. As custom duty would not be subsumed in GST custom duty would continue. Hence, the exemption from basic duty on basic agricultural produce like pulses would continue.
- The main impact that GST in agriculture would bring is the inflation with currently 4% VAT being increased to 8% - 12% on many food items including cereals and grains as the exemption under VAT is limited to unprocessed food. The most affected from the inflation would be the consumers living below the poverty line.
Conclusion
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.
