In India, The Food Processing sector has an exemplary role in connecting Indian farmers to consumers in both (national and international) markets. The primary food processing industrial sectors in India are grains, sugar, edible oils, beverages, and dairy products. Recently, the Government has increased the GST rates on Food processing industry. In this blog, we will discuss why the Government should bring down and reconcile the food industry.
Facts related to GST rates on Food Processing Industry
Around 74 % of countries have nil Goods and Service Tax rate on foods, and in most countries, the maximum GST rate on food is 10 % or less. In all the developing nations, food products are kept at lower tax rates to ensure that the products are economical.
Now, the food processing industry has become more attractive for international players due to its large agricultural base, huge livestock, and cost determination. Also, the market size of the industry is 32 % of India’s food market. As a result, the It has a notable investment in fixed capital, growing year after year.
The decision by the Government to increase the GST rates on Food Processing Industry
Recently, the Government has increased the GST rates on branded and packaged foods products such as potato chips, snacks food, cereals, namkeen falls into 12 % slab rate, while unbranded namkeens, chips, and snacks fall under a 5 % slab rate. This deviation has been increasing complications for the industry and inspiring the production of unreliable & unhealthy products. It is further observed that a move of consumption from branded to non-branded foods reduces Government revenue and proves inefficient.
The food processing industry, one of the most critical sectors in India, having a current aggregate output of around $158.69 billion, is struggling hard to operate considering the underline economic condition, the unpredictability of input supplies after the COVID-19 pandemic.
The high GST rate of 18% on online food delivery service providers and incompetent credit of such GST charged to the food sector hurt the growth of the food processing sector. Reduced GST rates will keep the cost of food at affordable rates and create more employment in the industry while promoting the initiatives taken by the Government.
The Food processing industry links agriculture and food consumption, and its performance has had a socio-economic impact resulting in price inflation issues. The decision by the Government to increase the GST rates in the Food processing has impacted the food ecosystem.
Why should the Government bring down and reconcile GST rates on the Food processing industry?
In such challenging times, the government needs to provide the required support to the Food Processing industry by introducing GST rate Rationalization measures in line with the previous requests made by the industry.
For the same, the Government should bring down the GST rates applicable to the food processing industry and reconcile the rates applicable between packaged branded and non-branded products in the food segment.
As per the industrial understanding, to streamline the GST rate structure, the Government is currently working on GST rate rationalization for combining two GST rate tariffs.
Also, countries like Australia, Malaysia, Canada, and Thailand have nil duty on food products. In contrast, countries like Germany, Italy, France, and Switzerland have notably reduced tax rates for the Food packaged industry covering between 2.5 to 7 %. This tax rationalization by the Government to reduce the GST rate on Food packaged Industry will further increase the tax collection.
Pandemic has turned the public eye on packaged food consumption in India, as consumers stay at home owing to the pandemic bought more essentials and ready-to-cook items benefiting companies. The Government decided to increase the GST Rates on Food processing Industry has affected the infrastructure of the Food Processing Industry. Now, the Government should rationalize the rates applicable between packaged and unpackaged food products to maintain transparent working.
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