Nov 17, 2020
The All India Food Processors’ Association (AIFPA) has written to the Indian Ministry of Food Processing Industries (MoFPI) and Ministry of Finance (MoF) requesting for a number of changes to be made to local GST rates. Representing Indian food industry, the request is to reduce GST rates for commonly consumed local food items to reduce costs and cut food wastage – and branded food products are not part of this request.
AIFPA has also requested to reduce GST imposed on ‘daily use foods’ products from 12% to 5%. These foods are fruit and vegetable chips, snack foods, ready-to-eat foods and it would be easily misunderstood that this also encompasses branded and packaged foods.
AIFPA was referring to foods that are common, regional, local foods which are largely common in rural areas, so the GST reduction would benefit these poor people. And their reference to potato chips meant banana chips and potato chips made and processed locally for everyday consumption.
AIFPHA clarified that many media reported it as ‘chips’ or ‘packaged foods’ in a different sense from what they meant and the misunderstanding here is due to the difference in understanding and perception of the food terms used between India and developed countries.”
Another key reason for the mix-up lay in the fact that AIFPA represents big-branded packaged food companies in India such as PepsiCo, Mondelez, Britannia Industries and many more, which led to worries when the call for lower GST rates were linked to unhealthy snacks such as ‘western’ chips.
The key is that the tax reduction will help to reduce costs, reduce the prices of the ‘daily use foods’ products and increase consumption.
India’s tax system was set up with higher levels, with rates ranging from 5% to 28% for food products, due to revenue needs at the beginning. And this is really very high as most Asian tax systems range from 5% to 10%.
AIFPA’s request still has several stages to go through before a decision is made – from MoFPI and MoF, it will need to go to the national GST Council and then go through analysis by tax, agricultural and consumer experts. In addition to ‘daily use foods’, AIFPA also requested the government to remove all GST imposed on the primary processing industry so as to reduce food waste in India. “It is recommended that the Primary Processing of Perishables should be placed at 0% GST in order to reduce the local wastage of agricultural produce and increase consumption, as these need to be urgently strengthened.
Primary processing is needed to keep the agri-produce safe in the form of industrial intermediates for later use in secondary and tertiary processing to prepare finished consumer products. This way, farmers will also not have to make distress sales, thereby increasing their income, and the food industry can use these intermediates to make food products for consumers all year round.
The government will also benefit from higher revenues through secondary and tertiary processing and the distribution of these products. Food products covered here include those that have undergone salting, brining, drying, grinding, ambient-controlled storing, cold transportation, and more. Even food packaging materials were highlighted as due for GST reduction – at present all food packaging materials including cans, bottles, jars, pouches, cartons, labels, and more are levied with GST between 12% and 18%. It is requested that all such items should be placed at a GST rate of not exceeding 12% in order to reduce the cost of food products and this aspect may also be examined by the govt. as it is for the interest of the consumer.