26th May 2017
With the Goods and Services Tax (GST) now being a part of India's fabric, change is on the horizon. GST is one of the largest tax reforms made in independent India and is a unique experiment in India's indirect tax economy. To brief you a little bit, what GST will do is to replace all the different taxes by the State and Central governments by a single tax, promising to ease out the understanding and functioning of many an industry.
A lot of domains then will go through a jig as a result of the passage of this Goods and Services tax: in the way they function, and in the way they profit, and thus, it's important to evaluate them early and be prepared. Agriculture is an important sector - perhaps the most important sector. It provides livelihood to most number of people in India. The number is estimated to be around 60 percent. And a result, it has an immense amount of impact on the Gross Domestic Product (GDP), a key marker in how a country is developing in the eyes of the world.
The agricultural sector is estimated to contribute about one fifth to our GDP. And if you delve further into the numbers, agriculture accounts for about ten percent of India's export earnings, which is huge in the context. The effect of the newly introduced Good and Services Tax regime is calculated to be overall positive on the agriculture industry. There are little concerns, as is when something new is being implemented, and we will come to them later.
Coming to the good things, the impact has been anticipated to be so big that India might have its first National Market for agricultural goods.
It is a scheme designed and proposed by the Central government. What it aims is to bring all the farmers and traders together in a regulated market, where they share an e-commerce platform too, so as to allow impartial give and take of agricultural commodities.
With the big ambitions set, the implementation is going to be challenging. And for it, this GST has come at the right time, promising to create an easier gateway to his implementation.
As discussed earlier, what GST will do is subsume every indirect single tax into one tax. That means that every trader will have tax credit for every tax he pays for value addition. This, in turn, promises to create a supply chain that is hassle free, transparent and allows movement of good without any hindrance.
Agricultural sector is based on perishable items. And as foreseen in the Goods and Services Tax regime, 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. As explained, this will happen because interstate transportation of goods, here perishable food, will be easier.
It is estimated that the cost of machinery, more the heavy machinery, are set to get cheaper much to the glee of the industries. This will allow more farmers to buy the machines, in turn helping the industry and thereby help the farmers earn more out of the same square feet of land.
It must be noted that dairy farming, poultry farming and stock breeding have been exempted from the definition of agriculture. Hence, these areas will be charged with GST.
Milk prices are set to go higher. The milk production in India has seen a good hike in the recent few years. The VAT charged on milk is around 2 percent, but once GST takes over, the tax is supposed to be around 12 percent. So milk and the milk products as a result will get costlier.
Tea and coffee are also estimated to get expensive, with the summation of all the taxes lesser than the one big tax that GST is going to be.
Currently, traders prefer to sell the good within the state to avoid the central tax levied by the government, CST. Now with GST, everything will be on the same level, and so the food, the processed food mostly, will be able to be made in one region of the country and consumed in the other.
Currently, transactions in the case where you deal in oilseeds, pulses and other cereals falls outside the purview of the tax system. What GST will do is bring it inside the umbrella.
Basically, the primary problem that the agriculture sector faces in our country is the transportation. The transport of goods from one place to another is convoluted; taking food from one state to another involves a lot of hassles, that this GST is said to be designed to address.
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