GST IN AGRICULTUREA GAME CHANGER OR A DISGUISED JACKAL?SUBMITTED TO:DR. NISHA BHARTIHOD, DEPT. OF AGRIBUSINESS,SIIBSUBMITTED BY:PARNEETAN KAURMBA-AGRIBUSINESS?Title: GST IN AGRICULTURE: A GAME CHANGER OR A DISGUISED JACKAL?PrefaceGood and Services Tax (GST) was introduced to harmonize the tax structure and operational ease leading to a single unified market at national level for goods and services and ensuring that there is no negative revenue impact on the states. Goods and Services Tax proposes to introduce a single tax on supply of goods and services or both, by amalgamating all the central indirect taxes (excise duty, countervailing duty and service tax) and state indirect taxes (VAT, luxury tax, entry tax, octroi, etc).So far GST seems to be more comprehensive, compliable, simple, harmonized and development oriented tax system.
The GST, unlike the old system, will allow the supplier at each stage to set-off the taxes paid at previous levels in the supply chain. It is essentially a tax on value added at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.This report discusses the implementation of GST In Agricultural Sector which is the backbone of our economy and contributes about 17% to the Country’s GDP. This report discusses the implementation of GST in Agricultural sector and the impact caused by it. AcknowledgementI express my deepest sense of gratitude towards Dr. Asmita Chitnis, Director, Symbiosis Institute of International Business, Pune for giving me opportunity to complete my dissertation at Symbiosis Institute of International Business,Pune..
I’m also thankful to Dr. Nisha Bharti, HOD, Agribusiness Management, Symbiosis Institute of International Business, Pune for guiding me throughout the dissertation.I perceive this opportunity as a milestone in my professional career. I will strive to use gained skills and knowledge in the best possible way, and I will continue to work on their improvement, in order to attain desired career objectives.Parneetan Kaur PRN: 16020242029MBA-AgribusinessSIIB,Pune?Table of contents?AbstractGoods and Services Tax (GST) is an indirect tax which was passed on 3 August 2016 and commenced from 1 July 2017 in India. India adopted concurrent dual GST model where taxes are collected in the form of State Goods and service tax (SGST) and Central Goods and service tax (CGST). Agriculture is the backbone of Indian economy which helps to sustain industrial growth and is the key to reduce poverty.
It accounted for 17.4 per cent of GDP in 2017. Implementation of GST is expected to satisfy both farmers and consumers by unifying the tax system and reducing the burden of tax and boost the economy in long run. This report studies the impact of GST on economy with special reference to agriculture and allied sector.Goods and Service Tax or GST is claimed to be a game changer for the Indian economy. It is one of the most crucial tax reforms in India. It was supposed to be implemented from April 2010, but due to political issues between the political parties and conflicting interests of various stakeholders it was pending since long.
It is a comprehensive tax system that subsumes all indirect taxes of states and central government and unified economy into a seamless national market. It is expected to overcome the drawbacks of existing indirect tax system & play a vital role in growth of India. GST is expected to address the cascading effect of the existing tax structure and result in uniting the country economically. This report highlights the background, objectives and the impact of GST on Indian Agricultural sector. The report further explores various benefits & opportunities of GST.
Introduction:Roll out of Goods and services tax (GST) from July1, 2017 marked a new era of taxation in Indian history. It is undoubtedly the biggest and most powerful tax reform since independence.The main rationale behind implementation of GST was to replace existing taxes like value-added tax, excise duty, service tax and sales tax. It will be levied on manufacture sale and consumption of goods and services. More than 150 countries in the world have implemented GST so far. Despite the various amendments to the proposed transition of GST since 2000, till 2017, it would be worthwhile to assess its positive impact on the various development areas viz. Agriculture, Manufacturing industry, MSME, housing, poverty reduction, employment, price level, EXIM trade, GDP, government revenue etc. GST is a broad based, single, comprehensive tax levied on goods and services at each point of sale of any goods or service, in which, the seller/manufacturer/retailer or service provider may claim the input credit of tax which he paid while purchasing the goods or availing the service; the final consumer will thus bear only the GST charged by the last dealer in the supply chain.
With the introduction of GST the burden of CENVAT and services tax would be comprehensively removed and major Central and State taxes will get subsumed into GST which will reduce the multiplicity of taxes. Thus it is a major improvement over the previous system of VAT making the system more transparent as GST will help in widening the coverage of tax base and increase tax compliance. This may lead to higher revenue which further results in lowering of tax burden.
Tax Structure In IndiaIndia is a federal country where Tax is levied by Federal and State Government with the taxation power defined in the Indian Constitution. The Central Government collected Direct Tax as well as Indirect Taxes and State Government collected only Indirect Taxes. Direct tax :Direct Tax is a kind of tax, which is paid directly to the Govt.
by the taxpayer. It is charged directly on the Taxpayer. It cannot be shifted from one person (Taxpayer) to another. There are several Direct Taxes levied in India which are as follows: 1. Income Tax 2. Corporation Tax 3.
Property Tax 4. Estate Tax 5. Gift Tax Indirect tax An Indirect Tax is kind of tax which is imposed on commodity (goods) or service that is paid by the consumer. Indirect Tax is collected from various intermediary sources such as company, dealer and retailer while the mediator collects Tax from the end user.
It is paid by one person to another and collected by another and is not levied directly. There were some Indirect Taxes are as follows: 1. Custom Duty 2.
Central Excise Duty 3. Service Tax 4. VAT 5. Entertainment Tax 6. OctroiHistory of GST In India In India, GST was mentioned for the first time on 28th February 2006 in the Budget Speech of the year 2006-07 by Finance Minister Sh.
P. Chidambaram. The Finance Minister in the Union Budget 2007-08 stated that GST will be introduced with effect from 1st April 2010. Central and State Governments will be working hand in hand together to prepare a roadmap for the introduction of GST in India. They planned to introduce GST or “replace the previous VAT and Service Tax” on 1st April 2010, but some of the States were not ready to implement the GST. After that on 1st April 2012, again Government was going to introduce GST, but due to some management, political and infrastructure problems it was not introduced. Finance Minister Arun Jaitley introduced the 122nd Constitution Amendment Bill in Parliament and implemented GST reforms by 1st April 2016 as explained in the timeline of events below.The advantage of GST is that it will replace Indirect Taxes which are levied by Central and State Government and reduce the burden of cascading effect and it will also improve the Tax compliances and Tax collection.
GST will prove the uniformity of Taxes in all over the country making India “A One Nation One Tax System”. Models of GST There are three prime model of GST: a) GST at Central Government level only b) GST at State Governments level onlyc) GST at both, Central and State Government levelSome of the important features of the proposed GST• This dual GST model would be implemented through a certain number of legal provisions. The GST shall have two mechanisms: one levied by the Centre (CGST), and the other levied by the States (SGST). • The Central Taxes and State Government Taxes would be subsumed under the GST. GST AND AGRICULTURE:Agriculture is one of the primary employment sectors to millions across India and is vital for the country’s growth.
India ranks third in farm and agriculture output globally. It is also the largest producer, consumer and exporter of spices and related products. Agricultural exports constitute 10% of the country’s exports, and are the fourth-largest exported principal commodity. India is also among the top producers of wheat, rice, sugarcane and fresh fruits. Agriculture sector contributes 17% share of Gross value added in the total GVA of country and employs 54.
6% of population as per Census 2011.Hence the impact and implication of GST in agriculture matters a lot. Indian agriculture is criticized for poor supply chain and cumbersome interstate trade. Earlier VAT taxes varied across states that discourage transportation to distant markets and produce was largely sold in the areas of production. Perishability factor, timeliness and post-harvest losses of horticultural commodities also lead to numerous losses of food in India.
Thus, a major taxation reform like GST will have an effect on the agricultural sector of Indian Economy. Basically at a broad level, we can divide the sector into two segments, namely, agricultural produce and processed foods separately because implications are quite different for these two. In the agricultural produce, conventionally we have seen that if there is any rate above 2%, unscrupulous players tend to evade tax and some states had VAT levels above 2%. Consequently, there was no level playing field between unscrupulous players who are evading tax and more organized players and the entire agricultural supply chain remained very fragmented with a number of intermediaries with all the agricultural produce now getting at zero rates.So, Short term obstacles in implementation of GST can create inflation and hike in input cost but in long term it might benefit farmers by easy movement of commodities, integrating markets and better prices for produce.Objective of study:This report has the following objectives:1.
To collect information of current tax system and analysis of tax by GST2. To study the concept of Goods and Services Tax (GST) and its impact on Indian economy.3. To understand how GST will work in India.4. To know the benefits of GST in Indian context.5. To know about the perception of farming community about GST6.
To study the overall impact created by GST.Review of literature:Reading and reviewing numerous research papers, journals and blogs about impact of GST on agriculture was necessary and useful to get an idea about the impacts and access them.Dr. R. Vasanthagopal in his research paper named,”GST in India: A Big Leap in the Indirect Taxation System” and concluded that switching to GST from current complicated indirect tax system in India will be a positive step in booming Indian economy. More and more countries are adopting this tax system.Nitin Kumar in his research paper titled, “Goods and Service Tax- A Way Forward” concluded that implementation of GST in India would help in removing economic distortion by current indirect tax system and expected to encourage unbiased tax structure which is indifferent to geographical locations.Akansha Khurana and Aastha Sharma in research paper titled, “Goods and services tax in India- A Positive reform for indirect test system” concluded that GST will provide relief to producer and consumer by providing wide and comprehensive coverage of input tax credit set –off, service tax set-off and subsuming the several taxes.
Methodology and data collectionThis report is prepared through both primary and secondary research conducted. The methodology in detail for both of these is:Primary Research:Primary research was based on the data collected form farmers in the Punjab (Ludhiana Dist.) and the sample size selected was 20. The data was collected based on their perception on GST and they all were medium (>5 acres of land) and large scale farmers. The following questions were asked and their opinions on the same were noted.1. How do you think GST will impact the Indian Economy?2.
How as per you GST will impact the Indian Agricultural Sector?3. How has GST affected your income?4. Has GST impacted the prices of Agri inputs that you require ?Secondary research:Relevant data collected from journals, research articles, newspapers and magazines. Relevant data were collected from internet, published articles, newsfeed and journals. Collected data was analysed and interpreted.
Analysis and Interpretation:1. Comparison between the old and new tax rate. This table below shows the GST rate and the VAT rate for different commodities.As we can see most of the commodities are in 0% tax slab under GST But few agri input products fall in 18% tax slab.
However, the rates on fruit and vegetable juices, jam, sauces, purees, mixes, concentrates and a host of processed foods falls under 12 to 18%. Thinking about food consumed by the poor, food grain and milk have been exempted from taxes.Cereals will be taxed at 5%.Under the new GST law, dairy farming, poultry farming and stock breeding are kept out of the definition of agriculture. Therefore, these will be taxable under GST. The main impact of GST in agriculture would bring is 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.
The most affected from the inflation in food prices caused by GST would be the consumers living below poverty line. Also, the incidence of taxation on agro processing industry would also help in reducing the cost of heavy machinery required for producing agricultural commodities. Implementation of GST is essential to improve the transparency, reliability, timeline of supply chain mechanism. Since 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 and would ensure reduction in wastage and cost for the farmers/ retailers. The table below shows the market distortion across different states that existed before implementation of GST. Thus, GST system seeks to replace multiple taxes and tariffs and has set free the decisions on warehousing and distribution from tax considerations.
Under GST, the logistics and transportation will be more cost and time efficient, thereby curtailing the wastage of precious food as well. Moreover, with the ease of availing tax credit under GST regime, it is expected to boost interstate trade leading to achieving the objectives of National Agricultural Market. Both CGST and SGST will be levied on import of goods and services into the country. Exports, however, will be zero-rated, meaning exporters of goods and services need not pay GST on their exports. About its implications on agricultural sector, it could be concluded that though the overall tax burden on consumers will be less in new tax regime, but certainly it would have inflationary pressure on the food articles especially processed one which may lead to restoring the consumption towards fresh farm products. The implementation of GST is going to benefit a lot, the farmers/ distributors in the long run as there will be a single unified national agriculture market which will help them to sell their produce for the best available prices.Analysis of The Primary Research Conducted:The responses were analysed and the following interpretations made:1. 2.
3. The primary research shows that though most of the people are ready to welcome GST but there are few who are still sceptical about the same. This analysis might vary from state to state, region to region, farmer to farmer, time to time.
Summary of Findings:Agricultural sector is totally based on perishable items. If the supply chain evolves into something better, improving quick movement of goods, it will allow less food to be wasted. The profit in turn will go the farmers and the retailers, too. This will happen only if proper interstate transportation of goods, here perishable food, gets easier. However, as the farm sector will remain largely exempt from GST, any input taxes suffered on inputs used in the farm sector such as seeds, fertilizers, pesticides, tractors etc, will remain blocked and contribute to increase in prices of farm output. Farm output prices are controlled by market forces and the farmer has little control over prices. As the input price rises and output price remains stagnant, the farmer will have no option but to absorb the cost, thus increasing his burden especially for small and marginal farmers.
Indian farmer is already bleeding under tremendous pressure from many ends and the increased burden of taxes will create a new problem for him. If somehow, the output prices increase, the nation will suffer as the food prices will go up, thus creating trouble for the common man. The government thus needs to be very cautious in implementing the new tax system and should have extra concern towards the farmers. Even a slightest burden on farmers can result in manifold distress and misery, they being the most vulnerable community of the country. However, a smooth GST regime can break inter-state barriers on movement and facilitate direct linkage between processors and farmers. This can transform the operations of mandis too if other necessary reforms to free up agricultural markets are undertaken.
Moving the tax burden to the consumer could impact farmers when it comes to purchasing equipment, but the simplification of the tax code improved flow of goods across state borders and lower logistics costs will benefit farmers in the long term.Farmers are also financially discouraged from selling their produce across India. At the moment, agricultural traders find themselves stuck in endless queues to get across state borders, where they are confronted by middlemen who levy a “fee”, essentially a cash bribe, to cross into another state.
While waiting for border officials, produce goes bad because trucks are left languishing for hours, even days at a time. The GST aims to remove the hidden, cumulative costs of doing business in India and has the additional benefit of reducing food wastage.The implementation of GST would boost the economic growth by the means of wider tax base, compliance in tax payment and by pushing balance of trade on favourable side. One of the most radical decisions taken at the GST council meet was to fix the applicable GST GOODS & SERVICE TAX May 2017 rate at zero per cent for most of the primary farm produce. The central government currently taxes neither production/sale of farm produce nor agricultural incomes.
Under GST also, there will be no VAT and the cesses too are supposed to be subsumed within the zero per cent GST. Thus, GST aims to improve the current situation of agriculture addressing to various problems in agriculture.With introduction of uniform taxes, seamless transport of agricultural commodities is expected. GST will also strengthen NAM.
Scope for further researchThis report was based on the collection of primary data from farmers in Punjab region and secondary data available in the form of reports, Journals and research papers. The study cannot be said complete till we know more about the impact of GST on manufacturing cost of agri inputs, impact on retail prices, influence of GST on inter-state movement of goods and the perception of people towards GST in different regions across India.All the above mentioned parameters hold an opportunity for research and analysis and knowing the perception of farmer community towards GST implementation in Agriculture.Bibliography:http://www.internationaljournalssrg.org/IJEMS/2017/Volume4-Issue7/IJEMS-V4I7P101.pdfhttp://www.iosrjournals.org/iosr-jbm/papers/Vol19-issue10/Version-6/E1910062630.pdfhttps://ccsniam.gov.in/images/pdfs/nam/Paper_Series-2.pdfhttp://www.icfa.org.in/assets/doc/reports/gst.pdfhttp://granthaalayah.com/Articles/Vol3Iss12/15_IJRG15_C12_76.pdf