Agriculture is principal source of livelihood and 20% contributor of total gross domestic product with flagging of 10% on account of total exports. In current tax regime, agriculture has enjoyed a various exemptions from indirect tax. Sale of agriculture commodities is exempt from VAT. Concessional rates have been imposed on agricultural accessories and supporting machineries.
As the GST is being introduced with the unbiased objective of having a unified tax structure for goods and services, this is likely to facilitate and strengthen the Scheme on National Agricultural Market (NAM) aimed at an integrated system of market of agriculture produce at the national level, allowing free flow of agricultural commodities across states. Now check more details “Impact of GST on Agriculture Sector, GST Rates on Agriculture” from below…
Impact of GST on Agriculture Sector
How Agriculture is Placed under GST:-
As per the Model GST law “agriculture” with all its grammatical variations and cognate expressions, includes floriculture, horticulture, sericulture, the raising of crops, grass or garden produce and also grazing, but does not include dairy farming, poultry farming, stock breeding, the mere cutting of wood or grass, gathering of fruit, raising of man-made forest or rearing of seedlings or plants.
This definition of agriculture under the Model GST Law is similar to the definition under the Maharashtra Value Added Tax Act (i.e. MVAT Act). However, under the Service Tax law, agriculture has been defined as ‘”agriculture” means the cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products’. The new definitions of agriculture and agriculturist are provided by GST in section 2(7) and 2(8) respectively.
GST Rates on Agriculture Sector
|Goods||Old Rate||GST||Diff (%)|
|Seed, Organic compost without brand||0||0||0|
|Headpump and its parts||12.5||5||-7.5|
|Tractor Tire & Rim||12.5||18||+5.5|
|Other tractor parts||12.5||18||+5.5|
|Harvester, Earth, Grader, Parts||0||12||+12|
Merits of GST in Agricultural Sector
- GST implementation will play favourable role for National Agricultural Market on merging all the different taxations on agricultural products. Once transportation facilitated, it will improve the marketing efficiency and create access to virtual world.
- GST is vital to enhance the performance of supply chain mechanism in terms of transparency, reliability and timeliness, which in turn will ensure reduction in waste and cost of agricultural produce.
- Agricultural sector has been kept outside from undertaking GST compliances.
- Will reduce the time taken for inter-state transportation.
- Service tax will also be exempted in various services related to agricultural produce.
- An agriculturist would come under non-taxable person.
- All basic agriculture goods (not processed) which are not chargeable under current VAT Laws would not be charged to tax in GST.
- As the exemption under VAT is limited to unprocessed food, the main impact that GST in agriculture would bring is the inflation with currently 4% VAT being increased to 8% on many food items including cereals and grains.
Demerits of GST in Agricultural Sector
- Because custom duty will not subsume GST, it will continue to impose on agricultural imports.
- GST is all set to increase the prices of most agricultural inputs like seeds, pesticides and farm equipments resulting into increase in cost of production for farmers.
- Also as GST being single source of tax across nation will not allow farmers any more to take advantage of inter-state price variations. Similarly they will find difficult to get cheaper inputs due to constant pricing across states unlike in previous states laws.
- Fertilizers like Urea, DAT, Potash, will bear a spike tax rate in GST.
- Drip and sprinkler irrigation equipment, which currently attracts a VAT rate of 5%, will be taxed at 18% under GST. Similarly, the tax rate on pesticide sprayers has gone up from 6% to 18% and electric motors from 7% to 12%. Tractors will be taxed at a rate of either 12% or 28%, up from the current 5%.
GST is expected to reduce incidence of suppressed sales since billing and payment of tax would be necessary for availing set-off of taxes at each stage. The same standard would apply to transactions between traders in agricultural commodities where there is significant amount of suppressed sale
The present system often, makes it difficult to implement tax support provided by the centre for an agro-commodity due to diverse policies adopted by the different states. The implementation of GST is predicted to bring uniformity across states and centre which would make tax support policy of a particular commodity effective.
The ease of availing tax credit under GST regime is expected to lift inter-state trade leading to achieving the objectives of National Agricultural Market
An increase in the cost of few agricultural products is anticipated due to the rise in inflation index for lesser 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 certify that farmers in India, who contribute the most to GDP, will be able to sell their produce for the best available price.
Written By: Amit Khiyani (CA, LCS, IFRS, BCom)