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Food majors satisfied with GST implementation; Smaller players worried
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Saturday, 14 July, 2018, 08 : 00 AM [IST]
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Ashwani Maindola, New Delhi and Shraddha Joshi, Mu
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While food majors are satisfied with the implementation of Goods and Service Tax (GST), which was rolled out a year ago, and are hopeful of a better future, the smaller players continue to be worried. However, the food industry, as a whole, wants further reduction in the rates of the levy on food products. The GST Council will hold a meeting in this regard on July 21, 2018, the outcome of which the food industry is eagerly awaiting.
The food industry started on a shaky note when GST was implemented and many of the products were kept on higher side of the rates, even products like chocolate were placed in the 28 per cent category, and the industry took by a storm. However, the government realised its mistake and rationalised the rates. Now most of the items have been place in the five and 12 per cent, while a few are in the 18 per cent category.
Suresh Narayanan, chairman and managing director, Nestle India, said that the industry has overcome from the teething phase of GST implementation. He added, “Very clearly, the food industry has made transitions into the GST regime. For those of us who are more organised, the transition has been relatively smooth, but for parts of the trade, it has been a difficult journey, but they are now also coming out of it. I believe the worst is behind us in terms of adjustment factors, and overall the consumption of food and consumer goods has been healthy. It is one of the sectors of economy we should be happy with.”
On the rationalisation of the GST rates, he added, “At the moment, two rounds of rationalisation have been done. I think it is important for the industry to internalise these and to be able to offer value to consumers. But it is something the government will review from time to time. As regards the food industry, I think what has been done till now has been positive, and I think organisations and companies have also passed on these benefits to the consumers and seen benefits in terms of increased consumption.”
Hemant Malik, business head, ITC Foods, agreed to that, and said, “GST has been very good for the industry. There were some initial teething troubles. I think the government is fairly conscious on how to tackle the challenges. In some categories, the rates were reduced, and overall, the method of doing business has become much cleaner now.”
However, he also opined that there should be further rationalisation in GST rates, stating, “I know we can’t have common rates across. But there are many food products consumed by masses. There are opportunities, and I am sure the government will be assessing those. Further, there are representations made to the government as well.”
Rajesh Ramakrishnan, managing director, Perfetti Van Melle India, stated, “GST is a beneficial legislation, which has certainly brought unorganised players in the confectionery business into mainstream, and formalising the industry.”
“The removal of trade barriers like check-posts has helped the sector to optimise logistics operations across state borders, reducing shipping time and cost. GST filing through ASP portal facilitates an efficient filing process, integration with the enterprise resource planning (ERP) systems and reconciliation of vendor GST invoices,” he said.
However, S Jindal, president, All India Food Processors’ Association (AIFPA), felt that there was a strong need for the further rationalisation of the taxes and particularly for the micro-, small and medium enterprise (MSME) sector, which represents 80 per cent of the food industry, requires a much-needed breather in terms of reduction in rates.
He argued that food processing industry should be treated at par with the agriculture sector, and hence, minimalistic rates should be given to the food industry.
Jindal termed GST as a serious example of conflicting regulations.
He said, “It is well known that perishable agricultural commodities are wasted to the order of Rs 1 lakh crore annually. The Ministry of Food Processing Industries (MoFPI) has worked extensively in this direction to save wastages.”
“However, the provisions of GST are not conducive to the same. Much before the initiation of GST, MoFPI and other expert bodies and associations had recommended that food should be kept at zero per cent and five per cent tax levels, with some selected items kept in the 12 per cent tax slab,” Jindal added.
“However, very unfortunately, food products have been levied at different tax levels of zero, five, 12, 18 and 28 per cent under GST. A number of common-use and highly perishable food items, and those which would be critical for doubling the incomes of farmers have greatly suffered and so has the entire scheme,” he said.
Not only food, but food services were also affected by the levy. Dilip Datwani, president, Hotel and Restaurant Association of Western India (HRAWI), said, “Initially GST came as a shock for the industry due to the variable tax bracket based on the hotel room tariffs. The tax rate for eating out at restaurants too was formerly declared at 18 per cent, but was later resolved and brought down to five per cent but without input tax credit (ITC), which remains a concern.”
“The non-availability of ITC is a big issue for enterprises, since they can no longer set off expenditures on capital investments and rentals, which are huge, especially in a city like Mumbai,” he added.
“There were many grey areas which caused uncertainties but were clarified and resolved over time by the GST Council. The high rate of 28 per cent continues to remain a concern, as stays are expensive for both domestic and international tourists,” Datwani said.
“Tourists prefer our neighbouring countries, including Sri Lanka, Bhutan or even Thailand, to travelling to India, because these countries have lower taxes compared to ours,” he added.
Datwani said, “For group travellers, India is unviable for tourists on account of the high GST. Tourists can stay for a longer duration in a country like Sri Lanka, as against the same spends in India because of the high GST.”
“One of the major issues for MICE in the hotel industry has been the unavailability of ITC benefit for the corporate sector,” he added.
“HRAWI has been requesting the government to allow enterprises to provide set off against taxes spent for business activities in different states,” Datwani said.
“There was a nominal slump on account of the compliances issues initially. This created confusion but has been sorted out now. The biggest worry remains that we are losing out on tourism due to the high taxes, and we are hoping that the government will consider it,” he added.
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