GST On Food Items: The Stakeholders’ Perspective
– Garisha Sharma
Economic tools used in the analysis of stakeholders
INTRODUCTION
It was on July 1 2017, that the indirect taxation structure of India was reformed almost fully. All the indirect taxes except a few state taxes were subsumed under the ambit of a common Goods and Service Tax (GST). There were many debates regarding its pros and cons for a long time. The matter was just tranquilizing when the Union Finance Minister declared 5% GST on pre-packaged food items on July 20222. As per the new guidelines, 5% GST will be levied on all the pre-packed and labelled food items including wheat, rice, curd, lassi, flour etc. This decision attracted a mixed set of criticisms and appreciation from various stakeholders. To understand its implication and reception, it can be studied under the heads of the following stakeholders:
THE GOVERNMENT
The government is prima facie a supporter of this tax as it was the one who proposed and enacted it although the opposition Members of Parliament were already protesting against the tax on goods of daily needs. The stance of the government here is ‘tax evasion by the reputed manufacturers’. Earlier GST was implemented only on products sold in unit containers by the registered brands. The brands started to misuse the loophole in this provision by selling in alternate ways over unit containers. This led to a fall in GST revenue. This became a challenging scenario for India which already suffers $10.3 billion tax loss annually. Further, the brand owners who had to pay taxes despised this decision and wanted uniform taxation.
SMALL AND RETAIL SUPPLIERS
Small and retail suppliers constitute a significant part of the Indian economy. In this case, they can be divided into two categories as follows:
1. Suppliers of pre-packaged and labelled items
The original GST provision does not impose tax on the products of those suppliers whose annual turnover is less than Rs. 40 Lakhs which is further reduced to Rs. 20 Lakhs in North Eastern states. The same will be applied to suppliers of food items. Therefore, suppliers with a turnover of less than Rs. 40 Lakhs will not be negatively affected by this amendment. However, it is not necessary that the supplier whose turnover is more than the above-mentioned threshold is fully established in the market and has strong consumer base.
This will consequently decrease the quantity demanded and the demand curve will shift down due to the economic tax incidence. Ultimately, the consumer base of the producer will be severely affected.
2. Supplier of Loose goods
Suppliers of loose goods are at the receiving end of the spectrum, as no tax will be imposed on loose goods. The quantity demanded will increase. Ultimately, their consumer base and sales will increase. More people will prefer to buy non-taxable loose goods over taxable branded goods.
PUBLIC
Public is the most important stakeholder of any economic or non-economic policy. GST is an indirect tax and it is ultimately the public who will pay the tax on goods. The public can be divided into two categories, i.e., the urban public and the rural public. Although both will be adversely affected, the negative impact will be more on the urban public. This is because people in urban areas are bigger consumers of packaged items as loose items are not easily available in cities. Rural public is not wholly impacted per se but a set of them who are consumers of the packaged items is at the suffering end of the spectrum. The buyers in rural areas purchase smaller-sized packs due to the lower purchasing power compared to urban areas. However, India has witnessed an increase in the sale of small packs of packaged goods as a result of high inflation. This is evident from 13.7% increase in contribution from lower price points packaged foods.
The impact will be more on the middle and poor classes of the country because the tax will be levied only on goods below 25 kg/liter. It is these two classes that purchase commodities in small quantities for maximum use of about a month. Rich families who buy goods in large quantities (more than 25 kg/litre) will not be affected. This shows the regressive nature of the tax.
Further, at a time when inflation is high, the country has not fully recovered from the post-covid19 affects and, the global impact of Russia-Ukraine war, the Indian public is not in a position to accept this reform positively.
CONCLUSION
To conclude, GST on food items will have a mixed impact on various stakeholders. While it will be beneficial for the government and for the supplier of loose goods to some extent, it will adversely affect the emerging small entrepreneurs and, the middle and lower middle-class people. The upper class is likely to remain unaffected by this step. However, considering the global inflation and the Russia-Ukraine war, it is not favorable to implement this law as of now because the downsides might outweigh the upsides. Therefore, it is advisable to implement this when the circumstances permit to maintain demand-supply equilibrium of the country.
Garisha Sharma is a law student at Hidayatullah National Law University