Govt should reduce and rationalise GST rates on food processing industry

New Delhi: The government should reduce the GST rates applicable on the food processing industry and also rationalise the rates applicable between packaged branded and non-branded food products in the segment, industry body ASSOCHAM has demanded.

Presently branded and packaged foods products such as potato chips, cereals, snack foods, namkeen falls under 12 per cent slab, while unbranded namkeens, chips and bhujia fall under a 5 per cent duty structure.

The food processing industry, which has a current aggregate output of around USD 158.69 billion is one of the most important sectors in India and is “struggling hard to operate” considering the stressed economic situation, uncertainties of input supplies after the Covid -19 pandemic, said ASSOCHAM.

The industry has linkage to agriculture and food consumption and its performance has a socio-economic impact, is also facing “price inflation,” said a letter by industry body ASSOCHAM addressed to the Minister for Food Processing Industries Pashupati Kumar Paras.

”In such testing times, it is crucial for the government to provide the requisite support to the industry by introducing GST rate rationalisation measures in line with the requests being made by the industry in the past and established global practices,” said the letter by ASSOCHAM Secretary-General.

According to the industry body, it understands that the government is currently working on GST rate rationalisation for merging two GST rate tariffs to streamline the GST rate structure.

Citing the global practices, ASSOCHAM said most of the countries accord a preferential treatment for taxation on food. “Around 74 per cent countries have nil GST/VAT rate on food and in 92 per cent countries the maximum GST/VAT rate on food is 10 per cent or less,” it said, adding in most of the developing countries, food products are kept at lower tax rates/ exempted to ensure that the products are affordable for the public at large.

Countries including Australia, Malaysia, Canada and Thailand have nil duty on food products, while Germany, Italy, France and Switzerland have special reduced tax rates for the packaged food industry ranging between 2.5 to 7 per cent, it added. According to ASSOCHAM, a tax rationalisation by reducing tax on packaged foods will further increase the tax collection.

“Historically, it has been seen that a rate reduction measure on a product may not result in any reduction in the GST revenue of the Government,” it said.

The food processing industry continues to become more attractive for global players due to its large agricultural base, abundant livestock and cost competitiveness.

“The market size of the industry is 32 per cent of India’s food market. The current aggregate output of the sector is around USD 158.69 billion which is expected to reach USD 535 billion by the end of 2025-26,” said ASSOCHAM.

Moreover, the food processing industry has a significant investment in fixed capital which is also growing each year. In the pandemic hit FY21, the industry had received FDI worth USD 393.41 million, it added.

Besides, this industry is also employment-intensive, and around 18 lakh people are engaged in the sector.