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How will the GST impact the production of and trade in agricultural commodities? How will the GST impact agricultural producers?

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How will the GST impact the production of and trade in agricultural commodities? How will the GST impact agricultural producers?

The GST is heralded as the biggest tax reform since independence, reforming the Indian taxation system through implementing a single tax on the supply of goods and services, replacing all the direct and indirect taxes currently implemented by the central Government and States. Overall, it is expected that the GST will have far reaching implications on businesses and production in India through changing India’s tax: structure, incidence, computation, payments, compliance, credit utilization and reporting. It is expected that this tax reform will increase economic growth rates and will broadly have beneficial impacts on the Indian economy through supporting the development of a common Indian market, reductions in logistics and transaction costs, improving compliance and broadening the tax base, and reducing the cascading effect of tax on the cost of goods and services.

How will the GST impact the production of and trade in agricultural commodities?

How will the GST impact agricultural producers?

Agricultural produce

Post GST, the agricultural produce will be able to be shipped in a seamless manner. Primary markets can respond quickly to the market signals and thus the localized shortages and gluts could be avoided to some extent. Further, this seamless transportation will reduce the transport cost. Domain experts expect the savings from such easy movement of agricultural produce will reduce the cost of the transport by about three to five percent depending on the type of commodity, and region.

The implementation of GST will also favor the National Agricultural Market on merging all the different taxations on agricultural products. The ease of transportation of the agricultural good will improve the marketing and improve the virtual market growth.

As per the press release by the GST Council on November 3, 2016, the Goods and Services Tax (GST) will be levied at multiple rates ranging from 0 per cent, 5,  12, 18  to 28 per cent and food grains will be exempted from tax.The lowest slab of 5 per cent will be for items of common consumption which include several food items. These include various items such as meat, fish, poultry, grains, cereals, dairy products and milk, confectionary, snacks, candy, etc.

Going by the above press statement, other taxes like purchase tax, market fee (mandi tax), and infrastructure development  tax will be subsumed into GST.

The transparent and complete chain of set-offs that are expected from the new tax system, the tax base will be widened and better tax compliance could be achieved. This could enable the government to the eventual lowering of tax burden on an average dealer in agricultural trade.


The GST will gradually herald a simple tax system, enabling hassle free movement of trade. The subsuming of major Central and State taxes in GST, complete and comprehensive setoff of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian agricultural commodities in the international market and give boost to exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.
In the new GST tax structure the threshold of gross annual turnover of Rs. 10 lakh both for goods and services for all the States and Union Territories is fixed. This is much higher than the present level of Rs 5.  lakh now. Adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States). This raising of threshold will protect the interest of small traders. This could attract more traders which would mean more competition.

Prakash Sinha
implication of GST on NAM

How GST implementation will strengthen the functioning of National Agircultural Market?

PK Joshi

e-NAM is platform to trade food commodities, which are exempt from GST. e-NAM will help in escaping mandi taxes, linking farmers with buyers and improving market efficiency, hence benefiting both farmers and buyers.

implication of GST on NAM

The goal of National Agricultural Market (NAM) and Goods and Service Tax (GST) are similar in that both are aimed to create a common national market. In NAM once the registration of the seller or buyer is done in one mandi, he can trade to or from any of the mandi of the NAM network in the country. The trader need not to register at different mandies and pay fee to different mandies for the trading. Analogous to this, on the implementation of GST, the trader need not pay multiple tax at multiple locations. and the vehicles need not wait at state borders to get clearance. hence, GST will facilitate the implementation of trade in agriculture by strengthening the functioning of NAM  

GST and Farm Income

The GST is the major tax reform in indian taxation history. It would really a hawk vision reform to ease the traders and consumers in participating in the economic activities and an attempt to improve the ease of doing busniess in India by the foreing players. It would certainly benefit the consumers by enabling them to pay lesser for the same commodities as it would eliminate the cascading effect of taxation on the commodities which prevailed in the sale tax regime. in agriculture sector, GST will act as an lever for the implementation of the NAM as it will facilitate the seamless flow of commodities across borders. But, its imploications on agricultural production is skeptical.  it may dis-insentivise the farming community, as at present the major farm input, the fertilizers are getting many tax exemptions and concessions. there is an apprehension that the number of exemptions and concessions are going to be prunned from 300 to 90 in GST regime. And, if fertilizer sector is under this list, certainly the price of fertilizers are bound to increase and it will impact farmers net income directly as they have to pay more price for same quantity of fertilizers.

Fertilizer Subsidy

How the subsidy on fertilizer, agriculture equipment & seeds which is currently being given to the farmers is going to continue under the GST regime?

Fertilizer Subsidy

Subsidies may be continued but the tax concession and tax exemptions would be prunned in GST regime. so, either the Govt. need to bear higher burden of subsidies or the farmers have to pay more price for the inputs or both. seeds were exempted from ant kind of tax in earlier also and will be exempted in GST also

PK Joshi
Input subsidies

In future, all subsidies will be targetted and directly transferred to the beneficiaries. So the GST will not have any impact on input use.  

Tax on warehousing of agriculture produce

Presently the warehousing of agricluture produce is exptemt from service tax as per the provison of Section 66D , i.e. "negative list of services" of the Finance Act. whether the same exemption will continue in GST. If not, will it increase the cost of products in the hands of consumer?


S Allen
warehousing agricultural produce

This is an interesting point.  If costs of storage in effect increase, it could affect production decisions and trade as well.  Is there more information on if this exemption will continue under the GST Bill?

Sachin Sinha
warehousing agricultural produce

In the Model GST Law there is no such information given till date, that this exemption is going to continue under GST.

GST and Ivestment in Agriculture

How GST will affect farm mechanization and investment in agro-processing industries?

Sachin Sinha
Agro processing industry

The food processing companies currently are not able to utilize  full potential because of high cost, low level of productivity, high wastage and lack of competitiveness of Indian food products in the global market. Therefore, to fully leverage the growth potential of the sector, current challenges that are being faced by the industry need to be properly addressed and steps need to be taken to remove the bottlenecks hampering the sectoral growth. So in order to face these challenges timely implemetation  of the GST with lower rate would be very effective as this will lead to timely availability of goods and raw material in correct manner, since trade barriers under GST will be removed, perishiable goods or wastage can be reduced hence thereby utilizing full capacity of this sector,with GST, there is going to be similarity in the taxation policy of the Central and the state,as a result investment in the sector will incease.

PK Joshi
Agroprocessing industry

Attracting FDI in agro-processing and including some of the agro-processing products in low GST category will strengthedn agro-processing sector.

Pinky Sundriyal
Farm Contracting

What would be the impact of GST on farm contracting and Is farm contactor liable to get registration under the GST?

PK Joshi
Farm contracting

Model Marketing Act promotes contract farming. Almost 14 states have partially adopted the Model Market Act, which facilitate escaping mandi taxes. GST should not have any impact on contract farming. Yes, domestic agricultural trade will grow with contract farming and e-NAM.

devesh roy
GST will have an effect on

GST will have an effect on contract farming through the changes in output and input prices as well as availability. if GST leads to net prices rising it would have a feedback effect on contracting. Regulation wise it is correct there is likely to be no effect

additionally GST will have an

additionally GST will have an impact on contract farming by expanding the market and hence the risk profile will change quite significantly. one of the strong basis for CF is risk sharing

Naveen P Singh
GST and its Implications

The GST is likely to have large implications for India’s agricultural and food sectors, especially considering that these sectors currently experience a wide array of different direct and indirect taxes levied by different actors. Finance Commission Chairman Vijay Kelkar recently estimated that the GST will be mildly inflationary for agricultural goods, increasing prices by between 0.61 percent and 1.18 percent. In general, it is expected that consumer staples will increase in price as they currently benefit from low indirect tax and will face higher taxes under the GST. Items affected by this include: food processed items, items produced by bakeries, edible oils, dairy items, and personal care items. For instance, milk products are currently subject to a 2 percent VAT rate, a GST rate of 18 percent will increase in the price of milk products directly. However, some estimates show that these price increases would be beneficial for millions of farmers as they will receive higher prices for their products. But in my view, this likely price increase will have minimum impacts on the poor as they will continue to remain secured through the Public Distribution System (PDS). It is also estimated that the GST will contribute to economic growth and support the creation of around 20 million jobs, in the agricultural and non-agricultural sectors and bring down inflation. Simultaneously, farmer associations have raised concerns that the Government may implement individual measures to control food inflation, meaning that farmers will have to pay higher prices for their inputs but not receive higher prices for their products, but these tall claims are yet to be seen and unfolded in new regime..

The main issue in the application of GST to food is the impact it would have on those living at or below subsistence levels. For those at the bottom of the income scale, it doubtless accounts for an even higher proportion of total expenditures and incomes. Taxing food could thus have a major impact on the poor. By the same token, a complete exemption for food would significantly shrink the tax base. Food includes a variety of items, including grains and cereals, meat, fish, and poultry, milk and dairy products, fruits and vegetables, candy and confectionary, snacks, prepared meals for home consumption, restaurant meals, and Beverages. in India, while food is generally exempt from the CENVAT, many of the food items, including food grains and cereals, attract the state VAT at the rate of 4%. Exemption under the state VAT is restricted to unprocessed food, e.g., fresh fruits and vegetables, meat and eggs, and coarse grains. Beverages are generally taxable, with the exception of milk. The alternative of exempting food altogether (or zero rating) would not be any better as it would have an adverse impact on Revenue Neutral Rate.

In the rural sector, the predominant distribution channel for unprocessed food would be either a direct sale by the farmer to final consumers or through small distributors/retailers. Even where food is within the scope of the GST, such sales would largely remain exempt because of the small business registration threshold. Thus, prices of the agricultural items and services are expected to rise after the implementation of the GST, although the overall inflationary impact of the proposed indirect regime will be negative. further, the output of agricultural sector is mostly exempt from tax, and inputs in agricultural sector like power and fertilizer are heavily subsidized for this sector, and will continue to be subsidized. However, in order to harmonize the provisions of APMC Act, EC Act and WDR Act in the newly rechristened e National Agricultural Market (eNAM), the implementation of GST will facilitate the rolling out of eNAM in letter and spirits by subsuming all kinds of taxes/cess and will improve market efficiency and reduce overhead costs. The ease of availing tax credit under GST regime is expected to boost and ease the interstate movement of goods as the GST has been labelled as a ‘destination-based tax’ meaning that goods and services will be taxed in states where they are consumed, by contrast, goods are currently taxed in states where they are produced. In effect, this means that ‘producing’ States are likely to experience a decrease in total tax revenues, and ‘consuming’ States an increase in total tax revenues, due to changes to where goods are taxed. However, it is hoped that the taxation of services by States (currently only the central government taxes services but the GST will allow States to tax services) will allow these States to mitigate the expected shortfall in tax revenues.

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