Food processing industry should be kept outside the scope of GST: PHD Chamber

Preferred policy option should be imposed on food processing sector, keeping GST rate not more than 4% and farm sector should be kept outside the scope of GST, said Sharad Jaipuria, President, PHD Chamber of Commerce and Industry.

The likely implementation of GST at more than 20% on food processing sector would not only impact the sector adversely but also hit the economic and social sentiments of the country, said Jaipuria.

The food processing industry is still at a nascent stage of development in our country as only 2.2% of food output is processed in India as compared to 78% in Philippines, 65% in the USA and 23% in China. At this juncture, high rate of GST will slow down the growth trajectory of food processing sector in India. Further, as food comprise a major part of the Wholesale Price Index (WPI) which is nearly 14.3%, an increase in tax on food items will adversely impact WPI leading to higher inflation in the country, he said.

We believe since food constitutes a large portion of the consumer basket of lower income households, any tax on food would be regressive in nature. Further, extending GST to food processing sector will also cause difficulty in view of the fact that production and distribution of food is largely unorganized in India, added Jaipuria.

On global front, most of the countries tax food at a lower rate keeping in view the considerations of fairness and equity. Even in countries such as Canada, UK and Australia where food constitute a relatively small portion of the consumer basket, food is taxed at zero rate. While in some countries, food is taxed at a standard rate which is as low as 3% in Singapore and Japan at the inception of the GST. Even in international jurisdictions, no distinction is drawn on the degree of processing of food. Hence, the benefit of lower or zero tax rates should also be extended to all food items in India regardless to degree of processing, he said.

Going ahead, a lower GST on processed foods would benefit the society at large and benefit the growth of food processing industry in the country, added Jaipuria.

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