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

1. RELEVANCE OF INDIRECT TAX PLANNING IN DOMESTIC FOODEXPENDITURE–BUYMORETOPAYLESSTAX(GST) AUTHOR:CABHANUPRUDHVIRAJ 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 letus analyze the subject Whatthisnewtaximpositionisabout??? 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 impositionof tax. PageContents KeytakeawayonGSTApplicabilityon‘pre-packagedandlabelledgoods’ AdverseeffectsofGST on‘pre-packagedand labelledgoods’ SurgeonRateofInflationintheIndianEconomy: GeopoliticalTensions Malnutrition FoodAdulteration Unemployment: RiseinIncomeInequalities 7.Foodwastage Socialwelfareschemes BlackMarket Increaseincompliancecoststosmalldealers Key take away on GST Applicability on ‘pre-packaged and labelled goods’ a) The said amendment came into effect from 18thJuly 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 commoditywill not affect the taxability.

2. 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. AsperRule3(a)ofChapter-IIofLegalMetrology(Packagedcommodities)Rules,packageof 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 commoditiescontaining quantity ofless than orequal to 25kgs or 25liters. For the purpose of GST, the supply of loose quantity from retail package is not a supply of packaged commodity Havinganalyzedthefacetsofthisnewlevyletusanalyzeitsadverseeffects. AdverseeffectsofGSTon‘pre-packagedandlabelledgoods’ SurgeonRateofInflationintheIndianEconomy: Consumer Price Index is one of the key factors tomeasure 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 forpurpose 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 weightagewas allotted to foodsand 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. Itisalsonotoutofplacetomentionthattheriseininflationmaydeterioratesthevalueofrupeeinforeign marketwhereinimportsmaybecomecostlyandmayresultindepletionofforeignreservesofIndianeconomy. GeopoliticalTensions Inthisglobalizedworld,nocountry’seconomicpolicycanbeframedinanisolationbyignoringgeopoliticaland 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 severelyaffecting 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 andunemployment in the country. Malnutrition The levy of GST on Pre-packaged and labelled products may risemalnutrition 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 reducedconsumption of proteinrich diet likepulses, nuts, milkand 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, undernutritionand anemia amongchildren, adolescent girls andwomen. 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 forthe purpose of GST levy. Theaboveexemptionmayresultinriseoffoodadulterationinthemarketwhereinthehouseholdsmaypreferfor purchase of loose quantity rather than pre-packaged and labelled packs. The quality and quantity issues maybe thematter of concern duringsupply of the loose quantities. Unemployment: Pre-packagedfoodproductsarethemajorsourcesofemploymentinruralareas.TherecentimpositionofGST onsupplyofpre-packagedandlabelledpacksreducestheconsumptioncapacityofthehouseholdsandmay result in reduction of sale of pre-packaged & labelled packs. The said reduction may increase the unemployment inIndian economy and agricultural areasin 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 areasfor women in particular. This recent imposition ofGST may underminethe women empowerment ofIndian economy. RiseinIncomeInequalities 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 pushingmiddle class households to lower middle class or lower middle class tobelow povertyand poverty to destitute. Foodwastage 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 andmay prompt for food wastagein the economy. Socialwelfareschemes 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 recentimpositionofGSTon pre-packagedandlabelledproductsare indirectlyreducingthenethome take. BlackMarket

4. The menace of black market and food adulteration is a perennial problem in Indian economy. The parallel economyandblackmoneyarestillabigchallengetoNationevenafter75yearsofIndependence.Wheneverany Governmentimposesanyrestrictionsortaxesontradethesameshallaugmentblackmarketintheeconomy.The recent imposition of GST on pre-packaged and labelled products may add one more vista for promotion of black marketin the economy. 10.Increaseincompliancecoststosmalldealers 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 theincreaseinGSTregistrationsmayalsoraiseadditionalworkburdentoGSTdepartmentalofficersin monitoringthe 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- packedfoodindustryinIndiaanditisalargeproviderofemploymenttowomenandotherweakersectionsof thesociety. Theadverse effectsof this newimposition needsto be calibratedvery carefully. (Theviewsexpressedinthisarticlearestrictlypersonalandauthorofthisarticlecanbereachedat caprudhvigst@gmail.com)