Rural India And GST: A Look Into How GST Hit The Agricultural Sector

The taxation system of India remained complicated for ages. However, everything changed with the implementation of a unified taxation system known as the Goods and Services Tax or GST. It is the tax for the supply of all goods and services at the national level.

Agriculture is the largest contributing sector, which alone covers 16% of the total Indian GDP. However, the transportation of agricultural products throughout the length and breadth of this vast country is a big problem. The implementation of GST in the field of agriculture solved this problem by creating the first national agricultural goods market in India.

This article simplifies the impact of GST on the rural agricultural sector and gives you a sneak peek into the various effects of GST on rural India.

National Agricultural Market

The National Agricultural market is a body proposed by the central government, which is a common eCommerce platform for traders, across different regulated markets and farmers. The goal is to create a transparent platform for the impartial trade of agricultural products and commodities.

Impact Of GST On The Agricultural Sector

Rural India relies on agriculture, but the entire country depends on the fruits of the harvest. Hence, the Central Government realizes that agriculture is both a vulnerable and vital part of the economy. Hence, the relief measures of the previous taxation model will be incorporated into the gst bill.

The key aspects of the GST model for agriculture are as follows:

  • The straight flow of agricultural goods and services in a chain can help in eliminating black marketing by tracking goods easily
  • With a better supply chain, there will be reduced waste in terms of time, effort, money, and products
  • The waivers on tractor manufacturing is nullified. You will be required to pay a GST of 12%
  • Currently, only 2% of VAT is charged on milk and dairy products. However, under the GST regime, the tax on condensed milk will be 18%, skimmed milk will be taxed at 5%, and there will be no GST on fresh milk.
  • The price of tea will increase from the average 4-5% VAT to 5% GST.

Effect Of GST On The Domestic Agricultural Market

Since poultry farming, dairy farming, and stock breeding are not included under the agriculture domain, different GST rules apply to them.

The tax rate on food items will increase from 4% VAT to 8% GST, which includes cereals. Meanwhile, unprocessed foods like eggs, fruits, and vegetables are exempted from taxation. Farmers are likely to receive a better price for their crops in the long run.

However, agriculture machinery is now taxable at 12% GST, compared to 6% VAT earlier. Hence, you will have to pay more for hiring or purchasing a machine.

Effect Of GST On Manufacturing Inputs

The increase in manufacturing costs will also increase the costs of machinery for consumers, which in turn will increase the costs of spares. There will be growth in manufacturing and agriculture as the prices continue to rise.

Effect Of GST On Farmers And Agriculture

With an increase in manufacturing costs, as a farmer, you will find it difficult to make profits. However, the transparent channel will save you from higher costs due to unauthorized distribution channels like the black market. Hence, if you can sell your goods at a higher price, you will still be making more profit.

Effect of GST on The Retail Price of Agriculture Inputs

With the rise in manufacturing costs, the finished product will get costlier since it has to accommodate the expenses. Hence the retail price will also increase.

Effect Of GST On The Exim Markets Of Agro-Inputs

Both imports and exports are subject to GST. No matter where it arrives, imported goods have to pay both COST and SGST. Hence, the number of imports may decrease over time.

GST Vision For The Future In Agriculture

The vision for the future is to increase the farmer’s income to increase productivity. To eliminate shady traders, the government has opted for one taxation system under GST. However, the increase in machinery prices will put it far away from the reach of most farmers, thus adversely affecting productivity.

Conclusion

Less food goes to waste with a better supply chain. The transparency will help avoid hoarding and the black market.

However, with the prices of agriculture necessities soaring, the farmers will have to bear the brunt of the gst tax rates. Farmers may have to absorb the losses dealing a heavy blow to the already crippling agriculture industry.

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