Chapter I:

INTRODUCTION
 Impact of GST on Agriculture Sector

About the GST on Indian Agriculture

Agriculture is the cultivation and breeding
of animals, plants and fungi for food, fiber, biofuel, medicinal plants and other products used to
sustain and enhance life.[1] Agriculture was the key development in the rise of sedentary human
civilization, whereby farming of domesticated species created food surpluses that nurtured the
development of civilization. The study of agriculture is known as agricultural science.
The history of agriculture by humans dates back thousands of years, and its development has
been driven and defined by greatly different climates, cultures, and technologies; industrial
agriculture based on large-scale monoculture farming has become the dominant agricultural
method. Although generally understood to denote the practices of humans, other animals—for
example, fungus-growing ants—have also been found to engage in agriculture.

Modern agronomy, plant breeding, agrochemicals such as pesticides and fertilizers, and
technological developments have in many cases sharply increased yields from cultivation, but at
the same time have caused widespread ecological damage and negative human health
effects. Selective breeding and modern practices in animal husbandry have similarly increased
the output of meat, but have raised concerns about animal welfare, environmental damage (such
as massive drainage of resources such as water and feed fed to the animals, global
warming, rainforest destruction, leftover waste products that are littered), and the health effects
of the antibiotics, growth hormones, artificial additives and other chemicals commonly used
in industrial meat production. Genetically modified organisms are an increasing component of
agriculture, although they are banned in several countries. Agricultural food production and
water management are increasingly becoming global issues that are fostering debate on a number
of fronts. Significant degradation of land and water resources, including the depletion
of aquifers, has been observed in recent decades, and the effects of global warming on
agriculture and of agriculture on global warming are still not fully understood.
However, entomophagy would solve most of the former problems, and may start to gain
popularity among society in the West.
The major agricultural products can be broadly grouped into foods, fibers, fuels, and raw
materials. Specific foods include cereals(grains), vegetables, fruits, oils, meats and spices. Fibers
include cotton, wool, hemp, silk and flax. Raw materials include lumber and bamboo. Other
useful materials are also produced by plants, such as resins, dyes, drugs, perfumes, biofuels and
ornamental products such as cut flowers and nursery plants. Over one third of the world's
workers are employed in agriculture, second only to the service sector, although the percentages
of agricultural workers in developed countries has decreased significantly over the past several
centuries.

NATIONAL AGRICULTURAL MARKET(NAM)

A scheme for the promotion of National Agricultural Market (NAM) is introduced by the central
government. Involving all the farmer and traders in the regulated markets with a common e-
commerce platform for a transparent, impartial trade of agri-commodities can be termed as
National Agricultural Market. Due to the different state VAT and APMC (Agricultural produce
market committee) law’s, implementation of NAM scheme would be challenging.

GST is crucial for creating a path regarding the successful implementation of NAM. Most of the
indirect taxes levied on agricultural products, would be subsumed under GST. GST would
provide each trader, the input credit for the tax paid on every value addition. This will create a
transparent, hassle-free supply chain which would lead to free movement of agri-commodities
across India.

Most of the agricultural commodities are perishable in nature. An improved supply chain
mechanism due to GST would reduce the time taken for inter-state transportation. The benefit of
reduction in time would be passed on to the farmers/retailers. Some states in India like
Maharashtra, Punjab, Gujarat, Haryana earn more than Rs 1000 crores from charging
CST/OCTROI/Purchase Tax. GST would subsume all the above taxes. Hence these states would
need to be compensated for the loss of revenue.
GOODS AND SERVICES TAX (GST)

Goods and Services Tax (GST) is an indirect tax levied in India on the sale of goods and
services. Goods and services are divided into five tax slabs for collection of tax - 0%, 5%,
12%,18% and 28%. Petroleum products and alcoholic drinks are taxed separately by the
individual state governments. There is a special rate of 0.25% on rough precious and semi-
precious stones and 3% on gold.[1] In addition of 22% or other rates on top of 28% GST applies
on few items like aerated drinks, luxury cars and tobacco products.[2]

The tax came into effect from July 1, 2017 through the implementation of One Hundred and First
Amendment of the Constitution of India by the Modi government. The tax replaced existing
multiple cascading taxes levied by the central and state governments. The tax rates, rules and
regulations are governed by the Goods and Services Tax Council which comprises finance
ministers of centre and all the states. GST simplified a slew of indirect taxes with a unified tax
and is therefore expected to dramatically reshape the country's 2.4 trillion dollar economy.

GST has been defined in Article 366 of the 122nd Constitutional Amendment Bill, 2014. Good
and Service tax is a combined tax levied on sale, production and consumption of goods and
services at the national level. GST merges all the indirect taxes at the central and state level and
thereby abolishes the cascading effect on tax. India currently has a dual system of taxation of
goods and services, in a sense that tax on activity of manufacture and provisions of service is
collected by Union Government and that on sale of goods is collected by State Government.
After the implementation of Goods and Service tax all the central taxes such as Excise duty,
Service etc and State taxes such as Value added tax (VAT), lottery tax, entertainment tax etc will
be subsumed under one uniform tax.

Features of Indian GST

 It will be collected on VAT method i.e. tax at every stage of value addition.
 It will be imposed at an uniform rate @20 per cent (Centre state share = 12 and 8 per cent
respectively)
  Indian government will also apply an integrated GST that means only Centre can collect
GST in case of inter-state trade and commerce and further this tax will be divided
between Centre and state based on recommendation of GST council advisory body.
Furthermore, indirect tax will not be subsumed into GST

Objectives of the study

 To study the impact of Goods and Service Tax in the Agricultural Sector in India.
 To study the Implication of GST on Agri – Input Market in India
 To study the Impact of GST on Farmers

Review of Literature
Shaik et al. (2015) have same view about GST, they said that GST acts as helper in the
collective gain for industry, trade, agriculture and common consumers as well as for the Central
Government and the State Government and thus ultimately helpful in development of Indain
economy. It was further reported that GST will lead to provide commercial benefits, which were
remained untouched by the VAT system. Jaiprakash had same view that GST at Central and
State levels are expected to give more relief to agriculture, industry and consumers. He also
indicated that trade and industry have encouraging responses to GST. Thus GST offers us the
best option to broaden our tax base and we should not miss this opportunities to introduce it
when the circumstances are quite favorable and economy is enjoying steady growth with only
mild inflation. Overall GST is helpful for the development of Indian economy as well it will be
very much helpful in improving the gross domestic product of the country more than two percent
mention by Chaurasia et al.(2016) in their study.

Chadha et al. (2009) has analyzed that GST would lead to efficient allocation of factors of
production. The overall price level would go down. It is expected that the real returns to the
factors of production would go up. Their results showed gains in real returns to land ranging
between 0.42 and 0.82 per cent. Wage rate gains varied 66 Indian J Econ Dev 13(2a): 2017
(April) www.IndianJournals.com Members Copy, Not for Commercial Sale Downloaded From
IP - 14.139.57.98 on dated 22-Jul-2017 between 0.68 and 1.33 per cent. The real returns to
capital would gain somewhere, between 0.37 and 0.74 per cent. In sum, implementation of a
comprehensive GST in India is expected to lead to efficient allocation of factors of production
thus leading to gains in GDP and exports. This would translate into enhanced economic welfare
and returns to the factors of production, viz. land, labour and capital.

Satish Chander, Director General, FAI said that fertiliser products are likely to suffer from
higher incidence of taxes with implementation of GST. Therefore, it is strongly felt that there is a
need for the government to pay special attention to fertiliser sector, keeping in view its direct
linkage with farmers and agriculture. Any new tax regime should not directly or indirectly
increase the cost of fertilisers to the farmers, especially when government continues to provide
subsidy on fertiliser directly or indirectly. Prima facie, the government should thus; either allows
zero or concessional rate of GSTon fertilizers

NirmalKhurana, Chairman of the ITA's said that tea is a product of mass consumption; it
should have a special rate under the GST regime. , GST rate on tea should be kept on a par with
the current tax rate of 5-6per cent. The present concessional tax rate of 0.5/1per cent for teas sold
through auctions is allowed to continue under the GST regime. Otherwise, tea will become
costlier.

Research Methodology
Research Methodology is a way to find out the result of a given problem on a specific matter or
problem that is also referred as research problem. In Methodology, researcher uses different
criteria for solving/searching the given research problem. Different sources use different type of
methods for solving the problem.

Significance of the study

There is a need to study this topic because in spite of the various measures taken up by the
government afterimplimentionof Goods and Service Tax. Agriculture plays a vital role in
India‟s economy. Over 58 per cent of the rural households depend on agriculture as their
principal means of livelihood. Agriculture, along with fisheries and forestry, is one of the largest
contributors to the Gross Domestic Product (GDP). As per the 2nd advised estimates by the
Central Statistics Office (CSO), the share of agriculture and allied sectors (including agriculture,
livestock, Agriculture plays a vital role in India‟s economy. Over 58 per cent of the rural
households depend on agriculture as their principal means of livelihood. Agriculture, along with
fisheries and forestry, is one of the largest contributors to the Gross Domestic Product (GDP). As
per the 2nd advised estimates by the Central Statistics Office (CSO), the share of agriculture and
allied sectors (including agriculture, livestock, forestry and fishery) is expected to be 17.3 per
cent of the Gross Value Added (GVA) during 2016-17 at 2011-12 prices.

Objectives of the study

 To study the impact of Goods and Service Tax in the Agricultural Sector in India.
 To study the Implication of GST on Agri – Input Market in India
 To study the Impact of GST on Farmers

Nature of the study

The present study is conceptual in nature as it focuses on concepts regarding Impact of GST on
Agriculture sector in India.

Data Type

Since the present study is conceptual in nature. Therefore, secondary data have been used to
achieve the objectives of the study.

Data Source

Secondary data have been collected from different journals, books, magazines, newspapers,
websites etc.

Limitations of the study

 This report is based on secondary data. Because of this limitation no realistic view or
current Impact of GST on Agriculture sector in India is obtained. Also, the data is not fully
 available and accurate because it is something that has already been collected by any other
person. So, there is difficulty in finding and collection of data.
 Another limitation is that the time allotted was limited and due to this constraint, all the
wide information about the topic is not covered.
 Chapter II:
Analysis and
Interpretation of Data
IMPACT OF GST ON AGRICULTURAL SECTOR

Since the passing of the long awaited 122nd Constitutional Amendment bill i.e Goods and
Service Tax (GST) bill by both upper house (3rd August 2016) and lower house (8th August
2016), the news has been hitting the tabloids every alternate day. It has been the talk of the town
and now that President Mr. Pranab Mukherjee has also given his assent and signed the bill for its
implementation with the ratification by more that 50 percent state assemblies, the bill will soon
become a binding law from 1st April 2017. With all the indirect taxes being combined under one
taxation system, it will hold a lot of benefit for all the sectors only if it is implemented as per the
proposed bill. However, India is not the first country to adopt a uniform taxation system. France
was the first country to adopt GST as its indirect taxation structure in 1954. Today, it has spread
to around 164 countries in the world which levies GST.

Agriculture plays a vital role in India‟s economy. Over 58 per cent of the rural households
depend on agriculture as their principal means of livelihood. Agriculture, along with fisheries
and forestry, is one of the largest contributors to the Gross Domestic Product (GDP). As per the
2nd advised estimates by the Central Statistics Office (CSO), the share of agriculture and allied
sectors (including agriculture, livestock, Agriculture plays a vital role in India‟s economy. Over
58 per cent of the rural households depend on agriculture as their principal means of livelihood.
Agriculture, along with fisheries and forestry, is one of the largest contributors to the Gross
Domestic Product (GDP). As per the 2nd advised estimates by the Central Statistics Office
(CSO), the share of agriculture and allied sectors (including agriculture, livestock, forestry and
fishery) is expected to be 17.3 per cent of the Gross Value Added (GVA) during 2016-17 at
2011-12 prices.
Sustainable agriculture, in terms of food security, rural employment, and environmentally
sustainable technologies such as soil conservation, sustainable natural resource management and
biodiversity protection, are essential for holistic rural development. Indian agriculture and allied
activities have witnessed a green revolution, a white revolution, a yellow revolution and a blue
revolution.
This section provides the information on agriculture produces; machineries, research etc.
Detailed information on the government policies, schemes, agriculture loans, market prices,
animal husbandry, fisheries, horticulture, loans & credit, sericulture etc. is also available.

In current tax regime, agriculture has enjoyed a various exemptions from indirect tax. Sale of
agriculture commodities is exempt from VAT. Concessional rates have been imposed on
agricultural accessories and supporting machineries. As the GST is being introduced with the
unbiased objective of having a unified taxstructure for goods and services, this is likely to
facilitate and strengthen the Scheme on National Agricultural Market (NAM) aimed at an
integrated system of market of agriculture produce at the national level, allowing free flow of
agricultural commodities across states. As per the Model GST law “agriculture” with all its
grammatical variations and cognate expressions, includes floriculture, horticulture, sericulture,
the raising of crops, grass or garden produce and also grazing, but does not include dairy
farming, poultry farming, stock breeding, the mere cutting of wood or grass, gathering of fruit,
raising of man-made forest or rearing of seedlings or plants. This definition of agriculture under
the Model GST Law is similar to the definition under the Maharashtra Value Added Tax Act (i.e.
MVAT Act). However, under the Service Tax law, agriculture has been defined as „”agriculture”
means the cultivation of plants and rearing of all life-forms of animals, except the rearing of
horses, for food, fibre, fuel, raw material or other similar products‟. The new definitions of
agriculture and agriculturist are provided by GST in section 2(7) and 2(8) respectively. The
impact of the new GST regime on agriculture and farmers. One can look at it from three angles:
(1) is GST going to be inflation-neutral, given that food has 45% weight in the consumer price
index (CPI); (2) is GST going to be revenue-neutral, especially which states may lose revenue
and how they will be compensated; and (3) does it give some incentives to link farmers with
food processing industry, which may help farmers reduce market risk, augment incomes, and
create new jobs in rural areas?

Fertilisers, which earlier attract VAT varying between 0% and 8% (in several states), will now
under GST regime attract 12% tax. That means the prices of fertilisers are likely to go up by 5-
7%, unless the government decides to absorb this by increasing subsidy. Pesticides are put in the
18% slab, up from the 12% excise they attract today and VAT of 4-5% in some states. Several
components and accessories of it are put in the 28% slab, while tractors themselves are in the
12% slab, up from zero excise and VAT of 4-5%. It is not very clear yet whether the input credit
claims to cover taxes already paid on components and accessories will exceed the final tax rate
of 12% on tractors, and therefore there could be a scope for reduction in tractor prices; or the tax
on components may be rationalised and the applicable rate brought down from 28% to 12%.
There is quite a bit of confusion here.

Most of raw agri-commodities including rice, wheat, milk, fresh fruits and vegetables, etc, are in
the zero-tax slab and rightly so as they are consumed by masses. However, it may be interesting
to note that a state like Punjab which contributes maximum grains to the central pool, imposes
taxes and various cesses to the extent of 12% on wheat and rice. And on top of that, there is the
arhatiya commission of 2.5% making the transactions cost of these basic staples in Punjab
mandis as high as 14.5%. In a country still ridden with poverty, imposing such high levels of
taxation on wheat and rice was nothing short of rent-seeking from the Centre and distorting the
markets. Now, with new GST regime, even if commission of 2.5% stays, one hopes that all other
taxes and cesses would go away. As a result, the purchase cost of wheat and paddy (rice) from
Punjab mandis will go down by 12%. This would be a major gain with several ripple effects.
One, the prices of these basic staples in open market should come down by say 5-7%, as most
grain-surplus states impose at least that much tax. This was a major distortion in mandis driving
the private sector away from Punjab. Now, with zero taxes, the private sector may come back to
buy wheat and rice from surplus states, giving a fillip to grain-milling.

Services provided by a goods transport agency for transporting agricultural

produce attracts no GST

Services provided by a goods transport agency by way of transport in a goods carriage of

agricultural produce falls under GST exemption list? What is the concessional rate of GST on
Services provided by a goods transport agency by way of transport in a goods carriage of
agricultural produce? Does Services provided by a goods transport agency by way of transport in
a goods carriage of agricultural produce fall under GST exempted items? As per GST Law 2017,
there is no GST payable on Services provided by a goods transport agency by way of transport in
a goods carriage of agricultural produce. So the rate of GST payable on Services provided by a
goods transport agency by way of transport in a goods carriage of agricultural produce is nil rate.
Commonly used Goods and Services at 5%, Standard Goods and Services fall under 1st slab at
12%, Standard Goods and Services fall under 2nd Slab at 18% and Special category of Goods
and Services including luxury - 28%. The most essential goods and services attract nil rate of
GST under Exempted Categories. Luxury goods and services and certain specific goods and
services attract additional cess than 28% GST. This information is about GST on Services
provided by a goods transport agency by way of transport in a goods carriage of agricultural
produce. Would you like to add more information about GST rate tariff on Services provided by
a goods transport agency by way of transport in a goods carriage of agricultural produce? Share
below your comments about Goods and Service Tax levied on Services provided by a goods
transport agency by way of transport in a goods carriage of agricultural produce. The above
details about GST rate tariff on Services provided by a goods transport agency by way of
transport in a goods carriage of agricultural produce is only for information.
The validity of above information and amendments about GST rate on Services provided by a
goods transport agency by way of transport in a goods carriage of agricultural produce may be
verified before any business dealing. Though GST rate for fertilizer was fixed at 12% and that on
tractor parts as 28% were reduced to 5% and 18% respectively by GST council hours before
launch of it . GST council is the powerful body that fixes rate for different commodities and it is
represented by both central government and state government. The revision of tax rate is a
continuing process of that federal body. So, we can expect a similar reduction in rates for other
farm inputs and machinery as and when the demand is represented

Earlier in agricultural sector…and After GST…

Agricultural sector has been the root of Indian economy and it contributes to around 16% to the
GDP. Over 53 percent of the rural livelihood depends on this sector as their primary means of
livelihood. The implementation of goods and service tax in agricultural and food industry will
have an impact on all the sections of the society. Food is a large portion of spending and food
basket consumes around 40%- 60% of the earning of a common citizen and increase in the price
of food items would result as a major burden on the family. Food industry is price sensitive and
it has direct impact on the lower income earners and the poor. Food includes items like meat,
fish, poultry, grains, cereals, dairy products and milk, fruits, vegetables etc. Earlier many food
items were exempted from CENVAT and items like food grains and cereals were taxed at 4
percent under the state Vat. Exemption under the State vat is strictly restricted to the unprocessed
food items like meat, eggs, fruits, vegetables etc.

From industry experts to small farmers to common citizen all are quite hopeful to get a fruitful
result from this GST regime. Agricultural goods are perishable in nature and thus are often
influenced by the amount of time taken in its transportation. The implementation is expected to
boost the agricultural market as taxation under a subsumed single rate would make the
movement of agricultural commodities hassle free as the products would be able to reach places
via trucks in a better way. Interstate trading of a particular product often is subjected to various
taxes, permission, license required for different states at every point of their transaction. This had
often created hindrance in trading of products across the country for many traders in the past. So
implementing GST would be the first step towards liberalizing the marketing of agricultural
products and creating a smooth transaction of goods. Good quality products which are
manufactured or produced in one part of the country can easily find a market place in other part
of country in the absence of multiple taxation burden. One of the other positive factor that GST
would bring in is that it would make the agri- machineries affordable to the small and marginal
farmers in India which was beyond their reach due to high excise duty on the machinery. This
ease in the transportation of agricultural products will not only save time and avoid wastage in
case of perishable goods but will also improve the marketing and virtual market growth.
Agricultural products were always subject to diversity in the taxation rates so a single rate of
goods and service tax would benefit the national agricultural market and help the farmers and
traders to sell their products in any part of the country and receive the best price for their
product. GST will also include in its ambit tax related to trading in oilseeds, cereals etc which
previously were outside the tax structure and thus will benefit the consumers and processors by
eliminating the negative impact of price on the trade of such products. The impact of GST would
also depend upon the size of the business. The single rate of GST for certain food items could
still lead to double the taxation burden even though they were exempted in the previous taxation
system. So a need for clarity on the exemption of food items is required to be listed. The
proposed GST rate should provide consistency in tax of processed and unprocessed food items so
that processed food comes within the reach of all the consumers. The slab for GST rate of
processed food should be different for different income group to make the benefit of such food
available for all the consumers. To keep the base of GST broad, to limit the price of consumable
food, the rate of GST for unprocessed food items like fresh fruits, meat, egg, vegetables etc
should be kept lower. Lower rate will give an alternative to the consumers to buy the
unprocessed food and then have it processed themselves in case of higher rate applicable to the
already processed food available in the market.

Implication of GST on Agri – Input Market in India

Presently, the tax structure of India is very complex. Looking to the global developments and tax

structure of developed countries, GSTis the need of the hour and will be the biggest reform in

Indian
taxation since 1947. Clause 366(12A) of the Constitution Bill defines GST as “goods and

services tax” means any tax on supply of goods, or services or both except taxes on the supply of

the alcoholic liquor for human consumption. Further the clause 366(26A) of the Bill defines

“Services” means anything other than Goods. Thus it can be said that GST is a comprehensive

tax levy on manufacture, sale and consumption of goods and services at a national level. The

proposed tax will be levied on all transactions involving supply of goods and services, except

those which are kept out of its purview

The implementation of GST will affect the working of every sector of the Indian economy,

including the most vital and vulnerable component of the Indian Economy, i.e. Agriculture

Sector, which contributes approximately16% to the national GDP. Agriculture in all fields

always had the soft corner because of which exemptions from taxes as relief has always been

provided to this industry and indirect tax is no exception with GSTfollowing the same. Ÿ All

basic agriculture goods (not processed) which are not chargeable under current VAT Laws

would not be charged to tax in GST. Ÿ Service tax also exempts several services in relation to

agricultural produce. However, there is an exemption in the indirect tax in the agricultural sector

but, current 4% VAT will increase to 8% on many food items including cereals and grains as the

exemption under VAT is limited to unprocessed food. Thus, there is a need to explore the

possible implications of the GST on the Indian Agricultural Sector. This study will mainly focus

on the agri – inputs segment of the agricultural sector of the economy.

Influence of GST on Indian agricultural market

As per the Model GST law “agriculture" with all its grammatical variations and cognate
expressions, includes floriculture, horticulture, sericulture, the raising of crops, grass or garden
produce and also grazing, but does not include dairy farming, poultry farming, stock breeding,
the mere cutting of wood or grass, gathering of fruit, raising of man-made forest or rearing of
seedlings or plants. Therefore, these will be taxable under the GST. According to the experts, the
main impact that GST in agriculture would bring is the inflation with currently 4% VAT being
increased to 8% on many food items including cereals and grains as the exemption underVAT is
limited to unprocessed food. The most affected from the inflation would be the consumers living
below the poverty line Wider coverage activity under tax fold is expected to enable reduction in
unit cost of goods and services, which will result in positive impact on agricultural sector.
Moreover, farmers are likely to get better prices of their crops due to single tax rate across the
country, which will enable them to get market access with wide areas.

Effect of GST on the manufacturing cost of Agri – inputs

Manufacturing cost is the major component for any industry as if manufacturing cost rises, the
price of the end product rises. This is because, manufacturers pass on the additional cost to the
consumers. However, with the implication of GST, agricultural sector is expected to benefit,
while the manufacturing cost of the agri – inputs are likely to rise

Effect of GST on the retail price of agri – inputs

The retail price of the agri – inputs are directly affected by the manufacturing cost o the products.
Thus, if manufacturing cost increases, the retail price of the product also increases and vice –
versa. According to experts’ opinion, retail price will increase for states where the products were
already exempted (example Irrigation Systems in Rajasthan/Haryana/Gujarat), on the other hand
other states were charging VAT.
Effect of implementation for agri – inputs on the agricultural growth
The implementation of GST will give more relief to agriculture through a more comprehensive
and wider coverage of input tax set-off and service tax set-off, subsuming of several Central and
State taxes in the GST and phasing out of CST. The transparent and complete chain of set-offs
which will result in widening of tax base and better tax compliance may also lead to lowering of
tax burden on an average dealer in agriculture

Effect of GST implementation on the farmer’s profitability

Farmers’ profitability largely depends upon tax structure for the inputs unitized by them. This is
because it determines the cost of production for the farmers. Lower the cost of production, higher
are the possibilities of him getting larger profits.

Effect of GSTon the export market of agri – inputs

The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of
input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of
locally manufactured goods and services. This will increase the competitiveness of Indian goods
and services in the international market and give boost to Indian exports. The uniformity in tax
rates and procedures across the country will also go a long way in reducing the compliance cost.

Effect of GST on the imports of agri – inputs in the country

In general,with Constitutional Amendments, both CGST and SGST will be levied on import of
goods and services into the country. The incidence of tax will follow the destination principle
and the tax revenue in ICFA Implication of GST on the Agri – Inputs Market in India: Survey
Report 9 case of SGST will accrue to the State where the imported goods and services are
consumed. Full and complete set-off will be available on the GST paid on import on goods and
services. With reference to the agri – inputs, major proportion of experts opine that there will be
no change in the imports as imports of product is largely associated with availability and quality
of products, which do not have impact due to GST.
GST implementation and PM’s vision of doubling farmer’s income by 2022

One country one tax system is the prime objective of GST; however, it may have an impact on
the PM’s Vision of Doubling Farmer’s Income by 2022 due to changes in the tax rates at various
levels of supply chain. Approximately 40% of the respondents were not able to relate both of
them as there are various components which need to be taken into account while finding a
correlation between both of them. However, 36% of the respondents feel that GST is in line with
the PM’s Vision of Doubling Farmer’s Income by 2022 as according to them, broader tax base,
greater tax compliance and transparent tax system are pre – requisites for realism of PM's vision
of doubling farmers’ income by 2022.

Impact of GST on Farmers

Impact on input-side

Fertilisers which were subjected to a 0% to 8% VAT will henceforth attract 12% tax under GST.
This will increase the prices of fertilisers by 5% to 7% unless the government offers to increase
subsidy.
Pesticides have been placed in 18% slab. This is an increase from the pre-GST 12% excise and
VAT of 4-5% in some states.
While tractors are placed in 12% slab, several components and accessories of tractors are placed
in the 28% slab. It is not clear what impact GST will have on the prices of tractor. However, it is
expected that there is a scope for reduction in tractor prices.
Overall, from the input side, the cost of cultivation is expected to increase marginally.

Impact on Output side

Highly used agri-commodities such as rice, wheat, milk, fresh fruits and vegetables are placed in
the zero tax slab. This will help in avoiding tax, cess and arhatiya commission levied by some
States.
The taxation structure for processed food is not very encouraging. The processed foods like fruit
and vegetables juices under GST will be taxed at 12% up from 5%. Some items like fruit jams,
jellies, marmalades etc will be taxed at even higher 18%. The higher tax rates are expected to
discourage the development of food processing industry, especially for perishable fruits and
vegetables. This may also affect the employment in food processing industry

Significance

GST will help to do away with mandi taxes and associated cess and levies which were distorting
agricultural markets. It is one of the biggest gains for agriculture. Introduction of GST could also
help in reinvigorating the interest of private sector in agriculture.

Challenges

Although, GST will help in reducing the food subsidy bill borne by the Food Corporation of
India (FCI), it may also negatively affect the tax revenue of the states. Due to GST, it is
estimated that FCI would save Rs 6,000-8,000 crore owing to smaller food subsidy bill. But the
surplus grain producing states like Punjab, Haryana, Andhra Pradesh, Madhya Pradesh and
Chhattisgarh may not get tax revenue from FCI or central government as they were getting
before the roll out of GST. Although, there is a provision for providing compensation to the
states for a period of five years by the union government, it is yet to be seen how these states will
be compensated for their losses.

18% GST on pesticides will increase farmer's burden

Farmers are not upbeat despite a heavy monsoon period expected which will enhance their
harvest, as the proposed implementation of 18% Goods and Services Tax (GST) on pesticides
will add to their existing plight.

Crop protection products are an integral part of the green revolution and play a crucial role in
increasing agricultural productivity. Over the years, the Indian crop protection industry has made
significant progress in terms of enhanced production capacity and integration of imported and
indigenised technology to meet the overall requirement of crop protection products in India. As
cultivable land shrinks, India will need modern agriculture sector to ensure food security.
To meet the food grain requirements of the nation, agricultural productivity and its growth needs
to be further improved. In combination with Integrated Pest Management and Plasticulture
techniques, agrochemicals play a critical role by providing pre and post harvest protection to
crops and agricultural output.

The proposed GST regime differentiates Crop Protection from seeds, fertilisers, farm equipment,
etc. Seeds (exempt), fertilisers (12%), tractors (12%), crop protection products remain taxable at
18%, depriving the industry of equal treatment vis-à-vis other agricultural inputs.

As the farm sector will remain largely exempt from GST, any input taxes suffered on inputs used
in the farm sector such as seeds, fertilisers, pesticides, tractors etc, will remain blocked and
contribute to increase in prices of farm output. Farm output prices are controlled by market
forces and the farmer has little control. As the input price rises and output price remains stagnant,
the farmer will have no option but to absorb the cost, thus increasing his burden. Indian farmer is
already reeling under tremendous pressure from many ends and the increased burden of taxes
will create a crater in his income. If somehow, the output prices increase, the nation will suffer as
the food prices will go up, thus creating trouble for the common man. The way out will be that
GST rate for crop protection products is reduced from 18% to the lowest slab possible. This will
ensure parity across all agricultural inputs and reduce encumbrance on farmers.
 Chapter III:
Conclusion and
Recommendations
Conclusion
An increase in the cost of few agricultural products is anticipated due to the rise in inflation
index for a brief period. Though, implementation of GST is going to benefit a lot, the farmers/
distributors in the long run as there will a single unified national agriculture market. GST would
ensure that farmers in India who contribute the most to GDP, will be able to sell their produce
for the best available price.It can be said from the above that GST is expected to have both
positive and negative impact on the farm sector. In case of milk, Tea and Fertilizer it is expected
to show a negative impact. These are the most popular commodities in India. In case of milk
there is no tax to procure milk from farmer, when GST will be implemented it leads to increase
the milk prices and this would not be welcomed by consumers. GST will make tax system
more transparent as single tax system is available to whole country. Agricultural products
were subjected to diversity of taxation rates; as single rate of goods and service tax would help
the farmers and also to traders because they can sell their produce in any part of the country.