Micro, small and medium enterprises (MSMEs)in food processing sector have raised concerns on the possible impact of goods and service tax (GST) on their businesses, particularly in the light of removal of the Rs1.5-crore threshold for the levy of duty on MSMEs in the manufacturing sector and the proposal to bring it at par with the service sector (whose annual turnover is Rs 20 lakh).
S Jindal, president,All India Food Processors’ Association (AIFPA) said that there was a basic difference between the manufacturing sector and the service sector.
“The value of the manufacturing economy carries the value of the materials used in a manufactured product, whereas no material is used in services. The variance in the material type would result in different kinds of products,” he added.
“And subsequently the end cost of the product varies, while the service or the method of producing that product remains the same. Therefore, it would not be wise to place the manufacturing and service sectors at par with each other,”Jindal stated.
He added that there should be a reviewto up the threshold to Rs three crore from the current Rs 1.5 crore in accordance to the inflation.
It is pertinent to mention here that under the current tax regime, the MSME sector, with a turnover of upto Rs. 1.5crore, is exempted from excise duty.
“Meanwhile, the problem is not only with the threshold, but also with other factors, making things complicated,”opined many in the food processing sector.
Another representative of the food processing industry, on the condition of anonymity, said that the multiplicity of the taxation will remain there.
“Under the GST regime, there will be one Central GST (CST), 36 state/Union Territory GSTs (SGST) and one integrated GST (IGST), and companies have to register themselves for each of the systems depending upon their business.And it is likely that the rates will not remain the same,” he added.
“Recently the GST council has stated that whatever rates it will recommend, the states can add two per cent to it or reduce it by two per cent. Also the GST council’s decision is not legally binding on the states. There is no mention of this in the constitution amendment bill,” the representative stated.
“Further we feel that the situation will be similar to what happened to value-added tax (VAT), where the VAT empowered committee’s decision to levy four per cent duty on food products was not accepted by the states. Different states levied VAT at different rates. Some levied five per cent VAT, some levied six per cent, others levied seven per cent, and some levied 10 per cent. That failed the VAT,” he added.
“What will happen to decentralised industrialisation or employment under these circumstances is also a big question,”opine many.
Further, there is apprehension amongst the food industry about the definition of processed foodproducts and their treatment as luxury items under GST.
Annasaheb Chakote, chairman, Chakote Group of Industries (Ganesh Bakery), said, “The inclusion of every processed food in the range of luxury food items is actually not going to work in the long term. This would have a very bad impact on the MSME sector entities.”
“The government is trying to inculcate entrepreneurship through such MSMEs and also giving loans to setup their processing units. In the last two years, 18 new small and medium enterprises (SMEs) have been set up in Aurangabad, all of which are into food processing,” he added.
“The programmes and schemes that are initiated by the government to promote SMEs will not work if such a high rate is considered. Through various associations the MSME players have filed their opinions and suggestions,” Chakote said.
Moreover, levying higher taxes on processed food will also prove a setback to the industry.
Chakote said, “If we look at the ministry of food processing industries (MoFPI), it is trying to utilise these players to tap the underutilised food production of fruits and vegetables such as pineapple, jackfruit, tomatoes, onions and potatoes(dehydration) and others through processing.”
“If all these processed foods are placed in the luxury items, how will the government policies work? Rather, it will discourage MSMEs from opening such processing units,” he added.