The GST rates on fruits and vegetables have been exempted to sustain a better flow of the supply chain mechanism but processed and frozen fruits and vegetables are taxed. There is no GST levied on fresh or chilled vegetables, roots and tubers like potatoes, tomatoes, onions, garlic, cabbages, cauliflower, carrots, beetroot, etc. Fresh fruits like coconut, apples, cherries, peaches, bananas, pineapples, guavas, mangoes, citrus fruits such as oranges, mandarins, grape fruits have also been exempted from the GST. Fresh nuts such as almonds, hazelnuts or filberts, walnuts, chestnuts, pistachios, macadamia nuts, kola nuts, areca nuts have been exempted.
Fresh and chilled fruits and vegetables have been exempted from tax under the GST which is in line with the different existing VAT laws in different states. Hence, fresh unprocessed goods purchased directly from agriculturists or dealers or retailers will remain exempted. Dry and vegetable juices have been taxed at the rate of 12%, which was earlier taxed at a rate of 5% leading to higher prices for dry fruits purchases. Fruits, vegetables, nuts preserved by vinegar or acetic acid or sugar, tomatoes, mushrooms or other vegetables preserved by other means, fruit jam, jellies, pastes or nut puree are taxed at a rate of 18%, which were earlier taxed under various VAT acts at a rate of 5%.
However higher rates of 12% and 18% have been introduced for dry fruits and preparations from fruits and vegetables which were taxed at a rate of 5% earlier, leading to a negative impact on FMCG companies. Piyush Menon further emphasised,“The FMCG sector will be in trouble because increase in price will definitely bring a decrease in consumption. There will be little cost cutting due to the transportation and storage getting cheaper as compared to the earlier tax reform. The price hike in dry fruits, packaged production like juices and frozen vegetables will take a hit especially in festivities where consumption of dry fruits, butter and ghee is more. It will affect the market.”
Products like butter, cheese and ghee will be expensive under GST as they are placed in the 12% bracket which is higher than the current average tax rate of 4-5%.
The overall GST rates will impact majorly the end consumers as the goods which were earlier taxed at a rate of 5% will now be taxed at 12% or 18% leading to a price increase and subsequent consumption decrease. The GST rate on processed foods such as pickles, sauces, ketchups and preserves have been reduced and this can attract more players in the sector. The GST of these products has been lowered to 12% from 18%. While price cuts by incumbents such as Nestlé or Hindustan Unilever (HUL) could be in the offing, as a result, entry of majors such as ITC Foods is possible. Ketchups, for the record, have largely two key players in Nestlé and HUL. Preserves, that is, jams, has one key player in HUL. Pickles, in contrast, are largely dominated by regional brands. Experts have opined that ITC Foods is broadening its business and stepping into luxury chocolates and gourmet coffee and is expanding in juices and dairy. The company is also refocusing on the potato chip and cookies categories.
GST: Sugar, tea, coffee and milk powder to become cheaper
The GST Council has fixed the levy at 5% for sugar, tea, coffee and milk powder. The Finance Ministry stated in a media release, “At present, sugar attracts specific central excise duty of `71 per quintal plus a sugar cess of `124 per quintal, which translates to add valorem rate of more than 6%. Including incidence on account of account of CST, octroi and entry tax, the present total tax incidence would work out to more than 8%. As against this, the proposed GST rate on sugar is only 5%, which is 3% less than present incidence of taxes.”
In the case of tea and coffee, state VAT at 5% and other taxes works out to more than 7%. As against this, the proposed GST rate for tea and coffee is only 5%. Instant coffee will attract higher tax rate. Milk powder is now exempt from central excise duty but VAT at 5% and other taxes add up to more than 7%, which is higher than the proposed GST rate.