A blog about the latest developments in the food technology sector.
Tuesday, November 25, 2014
Taxing the food-A retrograde step by governments in India
Whether in ancient kingdoms or in modern democracies, taxation is a genuine tool to garner resources for the development of the Society at large. But who ever is ruling a country must exercise caution and wisdom in choosing the basket of items to be taxed and at what rate. India to day is considered vibrant democracy with the governing fraternity being for the people and by the people. If so indiscriminate taxation regime can be nothing but suppression of the aspirations of people. This is what has been happening in the country with successive governments refusing to go by the wishes of the people not to tax their foods. If the industry is to be believed the present General Sales Tax GST) regime, being pushed through, wants to impose 20% tax on foods which is nothing but a cruel joke in a country where poor people predominate in the population. While lot has been said about "Right to Food" by the political class it is not realized that right to access food cannot be "at any cost"! The plea by the industry to reduce the food taxes to 4% is very reasonable and if the present government prides itself as a "responsive and responsible" one it must heed to this well reasoned suggestion. Here is a take on this contentious issue.
"Preferred policy option should be imposed on food processing sector, keeping GST rate not more than 4% and farm sector should be kept outside the scope of GST, said Sharad Jaipuria, President, PHD Chamber of Commerce and Industry. The likely implementation of GST at more than 20% on food processing sector would not only impact the sector adversely but also hit the economic and social sentiments of the country, said Jaipuria. The food processing industry is still at a nascent stage of development in our country as only 2.2% of food output is processed in India as compared to 78% in Philippines, 65% in the USA and 23% in China. At this juncture, high rate of GST will slow down the growth trajectory of food processing sector in India. Further, as food comprise a major part of the Wholesale Price Index (WPI) which is nearly 14.3%, an increase in tax on food items will adversely impact WPI leading to higher inflation in the country, he said. We believe 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. On global front, most of the countries tax food at a lower rate keeping in view the considerations of fairness and equity. Even in countries such as Canada, UK and Australia where food constitute a relatively small portion of the consumer basket, food is taxed at zero rate. While in some 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, he said."
It will be easy for the government to brush aside such suggestions branding industry as not adequately patriotic to help the government in refurbishing its treasury but the citizens in this country will eventually punish the government if does not remove all taxes on food materials, whether processed or raw. There has been and still a procession of politicians going to foreign countries on some pretext or the other but never seems to learn good things of benefit to the citizens there. If food is not taxed in countries like Canada, Australia and the UK why should it be taxed in our country? On one hand successive governments never get tired of proclaiming from the top of their perch that agroindustries must be promoted as it provides more employment per unit investment while in successive budgets taxes are neither removed nor reduced but invariably increased What an anachronism! Can we expect from the present Finance Minister, when he presents his budget in February next to start the process of reducing the food taxes progressively, to eventually achieve zero taxation in 5 years? Pray God for good sense prevailing over him in the next 3 months!