GST- IMPACT ON INDIAN DAIRY INDUSTRY

Goods and Service Tax- Dairy Industry

Milk contributes close to the 1/3 of gross income of rural families and in the case of these without land, nearly half of their gross income.

Milk is a single agricultural crop that has highest value, more than combined value of wheat and rice. Milk production has show rapid growth of 4 to 4.5% per annum during the last 25 year livestock sector accounts for 28 to 30% of GDP of agriculture.

Milk offers the quality bioavailability of protein, mainly to the vegetarian. Milk is an important nutritional requirement of human beings therefore may also improve the health reputation of the farmer and people at big. Excessive price of milk and milk product shall make it unaffordable to poor strata of society.

The overall market size of the products — butter, tetrapack milk and butter oil is estimated to be around 25,000 crore.

Existing Taxation Regime:

According to the existing taxation regime there is no tax on any of the fresh dairy products like raw milk, pasteurised–packaged milk, dahi, chachh, lassi and their variants. None of the dairy products attract excise duty except for the sterilised-sweetened-flavoured milks that also in a very few states. Mandi fee that once was levied on ghee across India has been abolished except in Uttar Pradesh and Rajasthan and that too has been reduced to 2% only. Value-added tax is levied at 2-5% on milk powders, 5% on chakka (basic raw material for shrikhand), table butter, cream, and UHT milk packed in cartons.

It is widely expected that GST will be an amalgam of VAT, excise duty, octroi, entry tax, mandi fee, cess and so on. 

Under New Taxation (GST):

Milk, Cheese, Egg and Honey falls under HSN code chapter 04 of GST commodity tariff schedule.  The details about GST rate changes for sale of Milk, Cheese, Egg and Honey are being updated here. GST rates in India is being finalized within a couple of months, as Goods and Service Tax is being implemented from July 01,2017 in India.    The GST rates are imposed in India under 4 slabs. 

Nil GST RATE;

1. Fresh milk and pasteurised milk, including separated milk, milk and cream, not concentrated nor containing added sugar or other sweetening matter, excluding Ultra High Temperature (UHT) milk

2. Eggs Birds' eggs, in shell, fresh, preserved or cooked [0407]

3. Curd

4. Lassi

5. Butter milk

6. Chena or paneer, other than put up in unit containers and bearing a registered brand name.

7. Natural honey, other than put up in unit container and bearing a registered brand name.

5% GST RATE;

All goods not specified elsewhere.

 1. Ultra High Temperature (UHT) milk

2. Milk and cream, concentrated or containing added sugar or other sweetening matter including skimmed milk powder, milk food for babies, excluding condensed milk.

3.  Cream, yogurt, kephir and other fermented or acidified milk and cream, whether or not concentrated or containing added sugar or other sweetening matter or flavoured or containing added fruit, nuts or cocoa

4. Whey, whether or not concentrated or containing added sugar or other sweetening matter; products consisting of natural milk constituents, whether or not containing added sugar or other sweetening matter, not elsewhere specified or included.

5. Chena or paneer put up in unit container and bearing a registered brand name .

6. Birds' eggs, not in shell, and egg yolks, fresh, dried, cooked by steaming or by boiling in water, moulded, frozen or otherwise preserved, whether or not containing added sugar or other sweetening matter.

7. Natural honey, put up in unit container and bearing a registered brand name.

 8. Edible products of animal origin, not elsewhere specified or included.

12% GST RATE;

1. Butter and other fats (ghee, butter oil, etc.) and oils derived from milk; dairy spreads

2. Cheese

18% GST RATE;

1. Condensed milk

GST- IMPACT ON INDIAN AGRICULTURE INDUSTRY

Goods & Service Tax- Impact of Indian Agriculture and Farmers

Agricultural sector is one of the largest contributing sector (around 16%) in Indian GDP.

The taxes applicable on agricultural trade in addition to the market fee also vary from state to state. The degree of market distortions on account of variation in the levy of market taxes/cess applicable on different commodities in different states are presented 0.5% to 9 % tax.  The implications of GST on agricultural marketing needs further examination due to its features like business size. Even if the food is within the scope of GST, such sales would largely remain exempt due to small business registration threshold. Also, given the exemption of food from central Value Added Tax and 4 per cent Value Added Tax on food item, the GST under a single rate would lead to a doubling of tax burden on food. There is need for more clarity on exemptions available under CGST and SGST. The implementation of GST is inevitably linked to successful implementation of NAM as it aims at unified tax structure of goods and services which would eventually include agricultural produce.

GST Rates:

Drip and sprinkler irrigation equipment, which currently attracts a VAT rate of 5%, will be taxed at 18% under GST.

Tax rate on pesticide sprayers has gone up from 6% to 18%

Electric motors from 7% to 12%.

Tractors will be taxed at a rate of either 12% or 28%, up from the current 5%.
Gunny bags, which are used to store and transport grain, will cost more, from Rs 18 to Rs 25.

Fertilisers an important element of agriculture was previously taxed at 6% (1% Excise + 5% VAT). In the GST regime, the tax on fertilisers has been increased to 12%,later reduce to 5%

India’s milk production in 2015-16 was 160.35 million ton, increased from 146.31mt in 2014-15.

Currently, only 2% VAT is charged on milk and certain milk products but under GST the rate of fresh milk is NIL and skimmed milk is kept under 5% bracket and condensed milk is going to be taxed at the rate of 18%. Tea is probably one of the most crucial items in an Indian household. The price of tea might also increase due to the tax rate of 5% under GST rate from the current average VAT rate of 4-5% with Assam and West Bengal with the exception of 0.5 and 1%.

Further, farmers are set to lose in another way. In the pre-GST system, they could shop across to another state if they found that a certain input was cheaper.

Impact of GST:

• The implementation of GST would have a major impact on transportation of agriculture products across state lines across the country.
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• State VAT was previously applicable to all the agricultural goods at each state, it passes through prior to final consumption.
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• GST will provide each trader, the input credit for the tax paid on every value addition, which will create a transparent supply chain and lead to free movement of agri-commodities across India.
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• Food grain such as wheat, rice and pulses might become cheaper after GST is implied later this year, as the GST Council has decided to keep them 0-rated under the new tax regime.
• Commodities like edible oil, tea, coffee and sugar are also likely to cost less as the proposed 5% tax rate is either lower than the existing taxes in most places or is same as the currently levied value added tax (VAT).
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• Perishable commodities like fruits & vegetables will benefit from improved supply chain as GST, would reduce the time taken for inter-state transportation. Some states like Maharashtra, Punjab, Gujarat, Haryana earn over Rs.1,000 crores charging CST/OCTROI/Purchase Tax. All these costs will be saved.
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• In simple words, GST will apply to goods at the point of consumption (rather than where they are produced) which will not only reduce the cascading effect of taxes but will also allow producers to easily claim credits and minimizing the opportunity for corruption.