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FOOD PROCESSING

Despite respite by GST Council, high rates burden for food sector SMEs
Thursday, 12 October, 2017, 08 : 00 AM [IST]
New Delhi
Despite the respite given by the Goods and Services Tax (GST) Council in its 22nd Meet held in New Delhi recently, the challenges remain for the food processing industries, particularly the small and medium enterprises (SMEs). Earlier, it was the demonetisation that made the situation a bit bleak, and now, it was the GST implementation.

Recently-released gross domestic product (GDP) data showed a two-point reduction in the country’s growth, which has also given the food industry a reason to worry. Experts opined that post-GST, the condition of the micro-, small and medium enterprise (MSME) sector is far from stable.

Sagar Anand Kurade, chairman and managing director, Suman Project Consultants Pvt Ltd, immediate past president, All India Food Processors’ Association (AIFPA), and food processing industry expert, said, “The MSME sector is the largest employer in India, accounting for 75 per cent of the total employment within the food processing sector.”

While the food processing industry does not have an issue, as such, with GST as a law, the issue faced by the industry is that of high GST rates.

Post-demonetisation, the food processing industry witnessed a change in the spending pattern.

“GST simply lead to, what I believe is, a temporary blip in the industrial output,” Kurade said.      

S Jindal, president, AIFPA, said, “It has been observed that the food industry has been adversely impacted by the rates fixed for it under GST.”

“It has led to an increase in the working cost and raw material cost, thereby increasing the product prices,” he added.

Previously, the MSME sector was governed under zero per cent excise duty and five per cent value-added tax (VAT), which now, under GST, are levied at varied rates such as zero per cent, five per cent, 12 per cent, 18 per cent and 28 per cent.

Plus, the cost of the packaging material has also gone up, and the combined effect on the sector is putting serious pressure.

Commenting on the specific challenges, Kurade stated that the biggest challenge pertained to the highest GST slabs of 12 per cent and 18 per cent.

The food processing industry needs to be seen as a value addition opportunity for an economy like India, where still 54 per cent of the population is directly and indirectly dependent on agriculture. The industry is of the opinion that the GST tax on such issues should not be more than five per cent.

“Another challenge the industry is facing is contrary to the expectation of selling packed goods in organised way, thereby avoiding any adulteration or quality issues,” Kurade said.

“There are many processed commodities such as pulses, spices, grains, etc., which are under dual (either zero or five per cent) GST levy, depending on whether it is sold as an open or packed or as a registered or unregistered brand,” he added.

“Compliance pertaining to the same becomes very difficult and leaves the probability of unfair trade practices on the part of some unscrupulous individuals/companies,” Kurade said.

Not only processed foods, but the machinery at the plants was also impacted under the GST regime.

Kurade said, “Most of the machinery and equipment associated with cooking, pasteurisers and evaporators have been place in the 28 per cent GST slab, while other lines and equipment, including packaging machinery, have been placed in the 18 per cent slab.”

“One should consider the fact that by having such a high tax bracket for plant and machinery associated with the food processing sector, it leads to a higher cost of doing business in India vis-a-vis global competitors,” he added.

“Moreover, banks don’t even consider these taxes as a part of costing towards loan provision or as subsidy provision,” Kurade said.

“Hence, the cost burden on any greenfield project within the food processing sector is on the shoulders of the entrepreneur/company,” he added.

“The government of India should be sympathetic to the fact that the health of the food processing sector is directly co-related to the health of lakhs of farmers and indirect beneficiaries,” Kurade said.

The government, at the recently-held meet, decided to raise the composition scheme to Rs 1 crore, allowing quarterly return to businesses with a turnover of up to Rs 1.5 crore to pay tax and deferment of the e way bill and reverse charge till March 31, 2018, which is a positive step.

However, according to the Confederation of All India Traders (CAIT), “The prevailing technological challenges and GST infrastructure bottlenecks still remain major bones of contention.”

CAIT urged the government to immediately took note of the widespread technical glitches associated with GST filling, like the non-smooth working of the GSTN portal, while processing the large volume of data and transactions, besides delayed refunds and procedural irritants.

Further, confusion pertaining to procedures has emerged another point of concern which requires immediate attention, as according to CAIT, “Ease of doing business must be an important objective of GST.”
 
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