The PHD Chamber of Commerce and Industry has advised the government to impose a preferred policy option on the food processing sector, keeping GST rate at not more than 4%.
"The likely implementation of GST at more than 20% on the food processing sector would not only impact the sector adversely, but also hit the economic and social sentiments of the country," said Sjaraj Jaipuria, President, PHD Chamber of Commerce and Industry.
Despite resentment by various state governments, the center has been working on implementing GST within a year or two. According to experts, the high rate of GST will slow down the growth trajectory of the food processing sector in India.
Moreover, as food comprises a major part of the Wholesale Price Index (WPI) at 14.3 percent, an incrase in tax on food items will lead to higher inflation in the country. Since food constitutes a large portion of the consumer basket of lower income households, any tax on food would be regressive in nature.
Further, extending GST to food processing sector will also cause difficulty in view of the fact that production and distribution of food is largely unorganized in India, added Jaipuria. He added that on a global front, most countries tax food at a lower rate, keeping in view the considerations of fairness and equity.
Countries such as Canada, UK and Australia where food constitutes a relatively small portion of the consumer basket, food is taxed at zero rate. In other countries, food is taxed at a standard rate which is as low as 3% in Singapore and Japan at the inception of the GST.
Even in international jurisdictions, no distinction is drawn on the degree of processing of food. Hence, the benefit of lower or zero tax rates should also be extended to all food items in India regardless to degree of processing, added Jaipuria.