AIFPA Appeals to FM Addressing Dark Side of GST Hike on Food Industry

The GST Council meeting is scheduled on 18 December 2019. With this in the background, the All India Food Processors’ Association (AIFPA) has written to Finance Minister addressing the anxiety in the food industry on the recent proposition for raising GST rates.

The AIFPA consists of members such as Haldiram, ITC, Haldiram, PepsiCo, Nestle, Bikanervala, and other small and mid-sized food companies. The letter was written by Subodh Jindal, President, AIFPA; it stated that the industry has been struggling to catch up with the operations under tight financial constraints. Any increase in the GST rates will have a damaging effect on the farmer, industry, and the government. 

Currently, food categories such as instant mixes, snacks, ready-to-eat products, namkeens, and pickles are taxed at 12%. The industry has been consistently requesting the government to reduce the taxes from 12% to 5%. The government has not agreed for this request all this while. In contrast, the food industry is facing a proposal from the government to increase the rates further, which is just.

It is speculated that the GST Council meeting will announce the tax rate hike for categories such as processed food, healthcare services, and mobile phones. The products and services from various categories are categorised into four tax slabs—5%, 12%, 18%, and 28%. The government is insisting on increasing the tax rates as an additional revenue of Rs.1,000 crore can be collected per month.

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Looking at the past patterns, it was found that the domestic consumption of FMCG products has slowed down across all channels in the past 12 months. This pattern is more evident in the rural markets where it fell to a seven-year low in the July-September quarter; from 16.2% in the previous year to 7.3%.

Companies that sell everyday household items are going through a stagnant phase, primarily due to the slowdown in rural demand owing to lower farm income, unemployment, and liquidity crunch. On the other hand, GST collections have also not been meeting expectations. Therefore, the government is looking for ways to boost the revenue amid an ongoing economic slowdown.

The letter also specified that the 12% GST on branded snacks is not reasonable as compared to the 5% GST on unbranded snacks. This anomaly has been increasing complexities for the industry. It indirectly supports the production of unsafe and unhealthy snacks, it said.

During a recent press meet, Nirmala Sitharaman has expressed that there have been no talks about revising the tax rates. However, it is known that the Central GST department has fallen short of reaching its target collections by 40% in the April-November period. 

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in