Relevance of Indirect Tax Planning In Domestic Food Expenditure - Buy More To Pa

1. RELEVANCE OF INDIRECT TAX PLANNING IN DOMESTIC FOOD EXPENDITURE – BUY MORE TO PAY LESS TAX (GST) AUTHOR :CA BHANU PRUDHVIRAJ https://taxguru.in/goods-and-service-tax/domestic-food-expenditure-buy-pay-tax-gst.html India is the second largest populated country in the world and heading towards occupying first position shortly. Ours is an agrarian economy where we need to balance food security, inflation, employment generation and self- sustainability. Need to underscore that large section of our population are struggling to meet both ends of the life in getting quality education for their children, good health care for family and social security at the time of retirement. In this background let us analyze the subject What this new tax imposition is about??? GST Liability on pre-package and labelled commodity has been matter of serious debate among trade and professional circles in last few weeks. In this article I share some of my thoughts on pros and cons on this new imposition of tax. Page Contents Key take away on GST Applicability on ‘pre-packaged and labelled goods’ Adverse effects of GST on ‘pre-packaged and labelled goods’ 1. Surge on Rate of Inflation in the Indian Economy: 2. Geopolitical Tensions 3. Malnutrition 4. Food Adulteration 5. Unemployment: 6. Rise in Income Inequalities 7. Food wastage 8. Social welfare schemes 9. Black Market 10. Increase in compliance costs to small dealers Key take away on GST Applicability on ‘pre-packaged and labelled goods’ a) The said amendment came into effect from 18th July 2022 wherein there is shift in imposition of GST on branded specified goods to imposition of GST on supply of “pre-packaged and labelled” commodities attracting provisions of Legal Metrology Act. Post 18th July 2022, the status of branded or unbranded commodity will not affect the taxability.

2. b) The supply of specified commodities in package which do not require declaration under the Legal Metrology Act then the same would not be treated as pre-packaged and labelled goods for the purpose of GST. c) As per Rule 3(a) of Chapter-II of Legal Metrology (Packaged commodities) Rules, package of containing quantity of more than 25 kgs or 25 liters do not require declaration under the Legal Metrology Act and accordingly GST would not be levied on pre-packaged and labelled commodities of more than 25 kgs or 25 liters. In other words, GST would be applicable on supply of pre-packaged and labelled commodities containing quantity of less than or equal to 25 kgs or 25 liters. d) For the purpose of GST, the supply of loose quantity from retail package is not a supply of packaged commodity Having analyzed the facets of this new levy let us analyze its adverse effects. Adverse effects of GST on ‘pre-packaged and labelled goods’ 1. Surge on Rate of Inflation in the Indian Economy: Consumer Price Index is one of the key factors to measure of rate of inflation in an economy wherein Consumer Price Index measures the general level of retail prices of selected goods and services that house holds purchase for purpose of consumption. The Consumer Price Index assigns different weights to various goods and services in an economy and tracks the movement of their prices. It is pertinent to note here that in computation of Consumer Price Index the highest weightage was allotted to foods and beverages i.e.45.86%. The recent levy of GST on Prepacked or Pre labelled food products have wider impact on foods and beverages industries with ultimate burden at the end of consumers. The said levy of GST may result in surge on rate of inflation of Indian economy and effects purchasing power of the households in general and rural areas in particular. It is also not out of place to mention that the rise in inflation may deteriorates the value of rupee in foreign market wherein imports may become costly and may result in depletion of foreign reserves of Indian economy. 2. Geopolitical Tensions In this globalized world, no country’s economic policy can be framed in an isolation by ignoring geopolitical and economic circumstances. The recent Russia-Ukraine war crisis has already resulted in rippling effect in crude oil prices, general rate of Inflation of world economy by severely affecting price of manufactured commodities in Indian economy. This levy of GST on pre-packed food products may add fuel to the fire on individual savings and unemployment in the country. 3. Malnutrition The levy of GST on Pre-packaged and labelled products may rise malnutrition in the country and rural areas in particular as the purchasing power of the household shall be reduced due to imposition of GST and may result in reduced consumption of protein rich diet like pulses, nuts, milk and diary foods.

3. It is also relevant to note here that the covid pandemic has already exacerbated the health and nutrition crisis among the poorest of the poor and recent imposition of GST may increase the low birth weight, stunting, undernutrition and anemia among children, adolescent girls and women. 4. Food Adulteration As mentioned earlier, the question of GST applicability arises only when goods are sold in pre-packaged and labelled packs. If the said items are sold in loose quantity, then the same is not a supply of packaged commodity for the purpose of GST levy. The above exemption may result in rise of food adulteration in the market wherein the households may prefer for purchase of loose quantity rather than pre-packaged and labelled packs. The quality and quantity issues may be the matter of concern during supply of the loose quantities. 5. Unemployment: Pre-packaged food products are the major sources of employment in rural areas. The recent imposition of GST on supply of pre-packaged and labelled packs reduces the consumption capacity of the households and may result in reduction of sale of pre-packaged & labelled packs. The said reduction may increase the unemployment in Indian economy and agricultural areas in particular. It is not out of place to mention that several co-operative societies, self help groups are depending on pre- packaged food industry by providing employment in rural areas for women in particular. This recent imposition of GST may undermine the women empowerment of Indian economy. 6. Rise in Income Inequalities The levy of GST on Pre-packaged and labelled products reduces the individual savings and purchasing power of middle class and lower middle-class households in the Indian economy and may result in demographic shift in the Indian economy by pushing middle class households to lower middle class or lower middle class to below poverty and poverty to destitute. 7. Food wastage As mentioned earlier, the GST is not leviable on supply of Pre-packaged and labelled products with admeasuring quantity of more than 25 kilograms or 25 liters respectively. In this regard, the companies in the food industry may promote additional discounts and cost savings on supply of the said quantities and this may result in behavioral change of food purchases by the consumers tending them to purchase larger quantity than required and may prompt for food wastage in the economy. 8. Social welfare schemes For effective handling of poverty, subsidies and social welfare schemes, the State and Central Governments are adopting direct benefit transfer in the form of money to the targeted section of the people of the society. The recent imposition of GST on pre-packaged and labelled products are indirectly reducing the net home take. 9. Black Market

4. The menace of black market and food adulteration is a perennial problem in Indian economy. The parallel economy and black money are still a big challenge to Nation even after 75 years of Independence. Whenever any Government imposes any restrictions or taxes on trade the same shall augment black market in the economy. The recent imposition of GST on pre-packaged and labelled products may add one more vista for promotion of black market in the economy. 10. Increase in compliance costs to small dealers As per Section 23 of the GST Act, the persons engaged in exclusive supply of exempt goods or services are not liable for GST registration. Due to levy of GST on supply of Pre-packaged and labelled products, there shall be raise in GST tax base whereby small dealers were liable to GST registration and they may opt for regular registration for seamless flow of Input Tax Credit. This may add additional compliance cost to small dealers for regular filing of GST Returns, reconciling monthly input tax credit etc., It is also not out of place to mention that the increase in GST registrations may also raise additional work burden to GST departmental officers in monitoring the small dealers. No doubt widening and deepening of tax base is a paramount to check black market and promote inclusive economy, but this piece of amendment appears to be counter productive due to the reasons that the country is facing large amount of unemployment, inflation and shrinking of valuable foreign exchange reserves and the morale of average Indian citizen is at low ebb. As it hits large sections of the population directly it needs to be moderated by limiting the maximum tax rate at 0.5%. Needless to say, MSME Sector mainly expanded in pre- packed food industry in India and it is a large provider of employment to women and other weaker sections of the society. The adverse effects of this new imposition needs to be calibrated very carefully. (The views expressed in this article are strictly personal and author of this article can be reached at caprudhvigst@gmail.com)