Impact of GST on the Agricultural Sector

Abhishek Kumar

30 Mar, 2024

Introduction

The states had the sole authority to set the tax thresholds for a variety of commodities and services provided inside their borders. As a result, there was a significant lack of uniformity in the tax system nationwide. Additionally, this resulted in numerous taxes in various states. India is a country in which agriculture is the main economic contributor. Small-scale farming is exempt from GST, and the majority of essential agricultural items sold in fresh form are also GST-free. The expansion and development of agriculture and related sectors have a direct impact on the general welfare of the populace, rural development, and employment. They also serve as a significant resource base for numerous agro-based enterprises and agro-services. The GST would include the majority of indirect taxes currently charged on agricultural items. It so occurred that indirect taxes were a state issue.

Agricultural Sector in India

One of the biggest contributors to India’s GDP (Gross Domestic Product) has always been agriculture. The GDP of the agricultural industry has always maintained a steady average. Since the year 2011, India has averaged 4532.49 INR Billion. In the year 2023, the average reached an all-time high number of 7004.72 INR Billion in the year 2022’s fourth quarter. India encompasses a society that is mostly built on the agriculture industry. According to estimates, more than 58% of rural households rely on the agriculture industry as their primary source of income. As a result, the agricultural industry encompasses more than just farming, horticulture, and animal breeding. Anything that falls under agriculture, including related industries like forestry and fisheries, is included in the agriculture sector.

Impact of GST on Agricultural Sector in India

1. Unified Market: The implementation of GST has resulted in reducing many interstate obstacles and created a unified market. This helps in an unrestricted flow of goods and services across states. The GST system has made interstate business very smooth and also fosters the development of an effective network for distribution.
2. Optimization of Resources: With the implementation of goods and services tax, the farmers can now select the crops and cultivate them using the most effective ways based on the demand in the market. Individuals working in the agricultural industry can now have flexibility in choosing the goods that they want to deal with without worrying about tax obligations.
3. Enhanced efficiency in supply chain management: The implementation of GST would ensure an increase in transparency, consistency, effective buying and selling, and a reduction in the supply chain timeline by ensuring a smooth flow of agricultural products from the farms to the marketplace. The Goods and Services Tax is going to create shorter, more productive, and more efficient supply chains for the agricultural market. With GST, there is less paperwork, a faster and better-coordinated flow of commodities, and lower expenses.
4. Elimination of multiple taxes: Earlier, there were many taxes that were levied on goods and services. This used to create a burden on the taxpayer. The GST system will make it simple by cutting all these levies and imposing only a unified rate on each good and service, which will ease the farmer’s financial load.
5. Faster transit and fewer complexities: By reducing the transit periods, many perishable goods can now be saved from being wasted. GST implementation is intended to increase the flow of goods and services across states. Consequently, this would expedite the movement of agricultural goods throughout the entire country and between states. As a result, the sectors in general and the people working in them specifically would be making greater revenues overall. Farmers or people responsible for producing all agricultural goods have historically been at the tail end of the supply chain. Since it has always been the weakest link in the network, poverty has virtually always been associated with it. GST implementation would speed up the supply chain, which would inevitably result in less agricultural produce being wasted.

Some challenges faced by the Agricultural Sector in India

• Compliance and creation of National Agricultural Market: The numerous Value Added Taxes that each state now has in place might make implementing NAM difficult. Implementing the GST in the agriculture industry might be quite difficult when combined with the state’s Produce Market Committee Law.
• Challenges in technological infrastructures: GST requires having a basic idea of technology, as many GST compliances are digital in nature. This has become a challenge for farmers who are not educated much. This can also be a barrier in places where there are network problems. Many farmers still live in remote areas, and they can face many other similar difficulties when adopting the same.
• Centre and State Coordination: Implementation of GST would have an impact on the state revenues, which, in fact, has delayed the process of implementation of GST across states and sectors of industry. Therefore, political will and state support would be required in synergy to implement an effective GST regime¹ across sectors.
• Lack of understanding and awareness: There is still a lack of awareness and understanding regarding the goods and service tax amongst farmers. The complex nature of the GST tax system, along with various other confusions, has led to uncertainty and a lack of awareness among farmers.

Goods and service tax on Agricultural products

In India, the agriculture industry is mainly exempt from the GST. In essence, agricultural products, including fresh seafood, dairy, fruit, and vegetables, are exempt from the GST. As a result, businesses in the agriculture sector that don’t engage in processing will not be impacted by GST. Additionally, businesses that just provide goods or services are exempt from the GST and have the choice of whether or not to register for it. Farmers who sell goods in their freshest form are therefore excluded from imposing GST on agricultural products. Additionally, seeds are exempt from GST, which makes life simpler for farmers.

Some GST rates on agricultural products

Conclusion

The aforementioned analysis indicates that GST is anticipated to have an impact on the agricultural industry that is both favourable and unfavourable. Since there is a single tax system for the entire nation, GST would increase tax system transparency. Agriculture items were taxed at a variety of rates; however, a single rate of goods and services tax would benefit both farmers and traders by allowing them to sell their goods wherever in the nation.

Frequently Asked Questions

Read our article:Composition scheme under GST & Presumptive Taxation Scheme

1. https://gstcouncil.gov.in/gst-council