July , 2017
Impact of GST on agriculture
14:41 pm

B.E. Bureau

Agriculture still employs the largest section of India’s workforce. It commands around 16% of India’s GDP. The proper implementation of the GST is expected to boost the sector. Transportation of agri products across India is one of the persistent problems faced by the sector. Before GST, different states had different tax rates. GST is expected to address this problem. It may provide India with its first national market for the agricultural goods.

GST is essential to improve the transparency, reliability, and timeline of supply chain mechanism. A better supply chain mechanism would ensure a reduction in wastage and cost for the farmers/retailers. GST would assist in reducing the cost of heavy machinery required for producing agricultural commodities. A problem may arise in the sector as the prices of fertilisers may spike under the GST. Previously, fertilisers were at 6% (1% excise + 5% VAT). Under GST, the tax slab is at 12%. Previously, tractors were exempted. With the GST, that exemption is gone. Tractors are now taxed at 12%. However, the positive side to this is that manufacturers will be able to claim Input Tax Credit. The burden, however, will increase on consumers. Krishnendu Bepari, a government employee owns large tracks of farmland in his village Harindanga in South 24 Parganas, West Bengal. He informed BE, “Agriculturists are under constant pressure to increase production from the market. Fertilisers and mechanised tractors are a key to this. If there is an increase of price in these segments, the impact will be detrimental on the sector.”

Apex industry body ASSOCHAM has urged the union government to review the Goods and Services Tax (GST) rates for select agriculture inputs like bio-fertilisers, bio-pesticides, bio-control agents (BCA), organic manures, farmyard manure (FYM) and others. “Higher GST in this segment will directly promote chemical usage thereby leading to increase in greenhouse gas emissions, besides it will also adversely impact public health,” highlighted ASSOCHAM in a communication addressed to the union finance minister Arun Jaitley. Highlighting the importance of bio-fertilisers, the chamber in its representation said that they are manufactured primarily by micro, small and medium enterprises (MSMEs) and also provide farmers an option towards sustainable agriculture practices like organic farming.

Dairy farming, poultry farming, and stock breeding are kept out of the definition of agriculture. Therefore, these will be taxable under the GST. Currently, only 2% VAT is charged on milk and certain milk products but under the GST, the rate of fresh milk is nil and skimmed milk is kept under 5% and condensed milk is going to be taxed at the rate of 18%. The impact of the new tax rates is yet to be seen on the sector.

The central problem plaguing the Indian agricultural sector is related to agriculturists not fetching fair prices for their produce. The deep-rooted agricultural distress in India is linked to the low prices of agricultural products. The sector will benefit largely if the GST can address this issue.

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