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Tax reforms mark significant step toward more rational ecosystem
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Saturday, 13 December, 2025, 08 : 00 AM [IST]
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Dr Ganesh Gaikwad
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The Food & Beverage (F&B) industry is one of the most dynamic and fast-growing sectors of the economy. Spanning agriculture, food processing, packaging, distribution, hospitality, and retail, it plays an indispensable role in ensuring food availability and driving consumer markets. The sector contributes significantly to GDP, supports millions of jobs, and influences rural and urban economies alike. Over the last decade, the F&B space has transformed rapidly due to rising incomes, changing dietary preferences, increasing demand for convenience foods, and the expansion of organised retail. Against this backdrop, tax reforms play a pivotal role in shaping growth, competitiveness, and affordability.
In 2025, the government introduced a landmark overhaul of the Goods and Services Tax (GST) structure, which has major implications for the F&B industry. The reforms aim to simplify the tax regime, reduce compliance burdens, boost consumer spending, and introduce a more rational structure for essential and non-essential goods. This article examines the details of these reforms, their expected impact, and the opportunities and challenges they present for the F&B ecosystem.
In a landmark decision aimed at overhauling the Goods and Services Tax (GST) framework, the GST Council, during its 56th meeting, approved a major simplification of the existing rate structure. The earlier four-tier system of 5%, 12%, 18% and 28% has now been streamlined into two principal slabs—5% as the merit rate and 18% as the standard rate—along with a special 40% levy applicable to sin and luxury items. These revised rates will officially take effect from September 22, 2025.
Among the biggest gainers of this restructuring is the food-processing industry, with a majority of products now falling under the more favourable 5% GST bracket.
This rationalisation - by lowering taxes across the board-offers multiple incentives for the sector and is expected to trigger a positive cycle of economic expansion through the following avenues:
Simplified Tax Regime
The streamlined GST framework brings greater consistency to food-related products by reducing the number of rate categories. A more predictable tax environment will help enterprises plan long-term investments, enhance compliance, and promote overall economic stability.
Lower Consumer Prices
Consumers are likely to experience a general reduction in food prices, making everyday essentials more affordable. The decrease in costs is expected to boost consumer demand, leading to higher sales for FMCG companies and packaged-food manufacturers. Additionally, the simplified system reduces compliance burdens for businesses and minimises the chances of tax-related disputes.
Correction of Inverted Duty Structure
The updated GST schedule helps rectify situations where tax on raw materials was previously higher than on finished goods. Addressing such inverted duty anomalies will immediately strengthen the food sector’s supply chain, improve liquidity—particularly for MSMEs - reduce working capital lock-in and encourage greater domestic value creation.
Resolution of Classification Conflicts
The new structure also removes long-standing classification issues stemming from different rates applied to similar items. For instance, packaged and loose paneer or different varieties of parathas earlier attracted varying tax rates. The new uniform rates significantly reduce these ambiguities and curb frequent classification-related disputes.
Additional Procedural Improvements
Beyond revisions in tax rates, the Council has endorsed several procedural enhancements, including easier registration and return filing, provisional refund mechanisms—especially important for inverted duty cases—and the rollout of the GST Appellate Tribunal (GSTAT) to ensure quicker dispute resolution and reduce the backlog of litigation.
Boost for the Processed Food Sector
Collectively, these reforms are poised to energise the manufacturing landscape. Lower GST rates on consumer goods, coupled with reduced retail prices, are expected to spark a virtuous cycle of heightened demand, thereby fostering growth and expansion across the processed food industry.
The overall industry has following positives:
Consumption: GST rate cuts will result in lower retail prices, which in turn will increase demand for manufactured products including processed food products.
Investment: With increased demand and positive business, sentiment and reduction in compliance, burden, investments are expected to rise.
Employment: With increased demand, expected rise in investment and formalisation of industry, more employment opportunities are expected to be generated in the sector and economy as whole.
Increased income level for farmers and food processors: The incomes and remunerations of the farmers and food processors are expected to rise by way of increase in consumption and investment in the economy, increasing the food processing infrastructure, level of processing and value addition and reduction in post-harvest losses.
Processed Food Products with Reduced GST Rates
S.
No.
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Product
Description
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GST
Rate (%) – From
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GST
Rate (%) – To
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1
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Ultra-High
Temperature (UHT) milk
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5%
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Nil
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2
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Condensed
milk
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12%
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5%
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3
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Almonds
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12%
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5%
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4
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Malt,
whether or not roasted
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18%
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5%
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5
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Sugar
boiled confectionery
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12%
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5%
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6
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Sugar
confectionery
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18%
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5%
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7
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Cocoa
butter, fat and oil; cocoa powder
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18%
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5%
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8
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Chocolates
and other food preparations containing cocoa
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18%
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5%
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9
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Pasta
(cooked, uncooked or stuffed); spaghetti, macaroni, noodles,
lasagne, gnocchi, ravioli, cannelloni; couscous
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12%
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5%
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10
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Pastry,
cakes, biscuits and other bakers’ wares (with or without
cocoa); communion wafers, pharmaceutical cachets, sealing wafers,
rice paper, similar products
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18%
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5%
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11
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Extruded
or expanded products, savoury or salted
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12%
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5%
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12
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Vegetables,
fruit, nuts and other edible plant parts—prepared or preserved
in vinegar or acetic acid
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12%
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5%
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13
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Jams,
fruit jellies, marmalades, fruit/nut purée and pastes
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12%
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5%
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14
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Fruit
or nut juices (including grape must) and vegetable juices
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12%
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5%
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15
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Soups,
broths and preparations thereof; homogenised composite food
preparations
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18%
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5%
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16
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Ice
cream and edible ice (with or without cocoa)
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18%
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5%
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17
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Namkeens,
bhujia, mixtures, chabena and similar edible preparations
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12%
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5%
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18
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Plant-based
milk beverages (ready to drink)
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18%
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5%
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19
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Soya
milk drinks
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12%
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5%
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20
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Fruit
pulp or fruit juice–based drinks (excluding carbonated fruit
beverages)
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12%
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5%
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Challenges AheadDespite the positive elements, the reforms are not without challenges. Businesses must quickly adapt billing systems, update product pricing, and manage ITC implications. Manufacturers of products now classified under higher tax slabs face cost pressures, and small businesses may still require support to transition smoothly. Additionally, the impact of higher taxes on sin goods may spill over to related sectors like packaging, cold chain logistics, and retail. Consumer response to price hikes will determine the long-term sustainability of such high-tax categories. The new tax reforms mark a significant step toward creating a more rational, transparent, and growth-oriented taxation ecosystem for the food & beverage industry. By reducing the tax burden on essential and processed foods, the government has prioritised affordability and industry competitiveness. At the same time, the introduction of a higher tax on sin goods underscores a commitment to public health objectives. As the F&B landscape continues to expand and evolve, these reforms are likely to shape market dynamics, consumer behaviour, and industry strategies in the years to come. For businesses, the path forward lies in embracing adaptability, innovation, and compliance to harness the full benefits of this transformative tax overhaul. (The author is assistant professor, School of Food Technology, MIT Art, Design and Technology University, Pune)
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