The Different Ways In Which GST Has Affected The Food Industry

GST has been introduced in India with the intent to unify the tax regime and make India a common market. Reducing the multiple points of taxation, GST aims to simplify the pain points involved in a transaction, including sale and purchase. However, the new system of taxation has confronted various industries with alternating impact, parleying with the food industry as well!

The food service sector is set to swell up to a 5.99 trillion giant by the end of 2023, according to BusinessStandard.com. The industry eats a massive share in the entire market.

Having contributed over 18000 crores in taxes for the year ending 2019(BusinessStandard.com), the prominence of the food industry is an outstanding one, making it vital to study the impact of GST on these numbers.

Applicability of GST And Tax Credit

GST shall be levied at every stage in a distribution chain and at the time of production. Dealers will be able to avail an input tax credit on the tax which is remitted at the earlier stages of the transaction. As a result of this setting, the ultimate consumer will only bear the burden of tax paid by the last dealer in the chain.

Now, restaurants, food delivery services and other constituents of the food industry will charge GST on the supply of goods and services by them. Conventionally, such tax shall be charged as a per cent of the total value of bill amount. The rate of tax applicable shall vary depending on the type of service and facility provided by them.

GST applies to a business in the food industry from the starting stage and continues to remain applicable until the last point of the transaction. Take, for example, the incidence of purchase of raw materials and sale of the final products. Before now, the customer was burdened by the applicability of multiple taxes at different stages of such a transaction.

A clear examination of a bill under the VAT regime and GST regime will highlight the stark stretch between the taxes levied under the two systems. For the consumers, GST is truly a reason to rejoice, for they will end up paying far less quantum of taxes on their consumption than before.

With the introduction of GST, the cascading effect of taxes has been eliminated, along with the fixation of rates and laws. Having specified the requirements related to compliance procedures, the government ensures rightful implementation of these regulations.

Impact of GST on Services of the Food Industry

The pervasive effect of GST has been felt on the food industry, as much as any other industrial domain. While it has been seen in good light for some components of the industry, yet others have faced some degree of brunt under it.

Speaking in broad terms, GST had impacted small scale restaurants positively while 5-star restaurants and hotels have weathered under the system of GST. Among the most thriving are bakeries, which have benefited with this overhaul by huge numbers. They now charge a rate of 39% where they were charging 26.5% before now.

The current rate of tax on food is 20.5% which does not include the impact of dual taxes. It is now mandatory for restaurants and food service outlets to obtain registration under gst.

Under the GST regime, Service tax and VAT have been combined together to be charged as one single rate. The working capital reserved by restaurants will now be optimised to a large extent. This will create a positive impact on the service that they offer to their customers.

As a consumption-based tax, GST shall be levied only at the time of sale of food products by a manufacturer. This implies that no tax shall be levied on the manufacture of items of food, which further simplifies things for the industry.

A Look at the Types of Supplies in the Food Industry 

For the purpose of GST, we need to take a look at the supply of various food products and services related to them. Food products can be divided into branded and non-branded options. On the other hand, food-related services can be divided into hotel services, restaurant services and catering services.

The rates of GST applicable to the product and service offerings of each such sector are different. They have been described in clear detail through various resources, for the benefit of the users.

At the time of launching the GST regime, it was pointed out that the applicability of the new tax system shall raise the prices implied on agricultural goods. While it is true, a quicker response in the supply chain has proposed a compelling argument in favour of the new tax.

With the elimination of multiple taxes like Octroi, entry taxes and VAT, products are now capable of reaching the customers faster than before. This has significantly lowered the hassle involved in transporting the goods across states.

Market growth is expected to be achieved through the implementation of GST. The proposed regime of the new taxation system shall be instrumental in merging the National Agricultural market. Thus, the varying taxes applicable to agricultural goods will be merged into one, paving the way for virtual growth of the market and marketing outlay.

In Conclusion

Talking about the goods and services tax network and the overall impact of GST on the food industry, one may be conservative. It will not be wrong to conclude that all has not been good for the food industry with the piercing of the curtain of charges under the erstwhile taxation system.

The requirement for compliance and maintenance of records has certainly burdened most businesses in the food industry. However, it is essential to look at the positive impact of GST on the food industry.

There are ample reasons to rejoice its introduction while many still speak against it. The new system will take a fair share of time to familiarise itself to the components of the food industry.

With the gradual benefits of the new tax regime, making themselves apparent to the businesses, a time might come when it is welcomed by the industry and the consumers alike.