The companies told FM in the letter that the industry has been struggling under severe financial constraints and any increase in GST rates will hit the sector very hard.

Food companies write to FM Nirmala Sitharaman on concerns of increase in GST rates
Money GST Tuesday, December 17, 2019 - 09:42

Leading companies in the food sector have addressed a joint communication to the Finance Minister Nirmala Sitharaman requesting her not to increase the rate of GST on food products, Economic Times reports. This letter is based on rumours floating around since the GST Council is set to make a decisions on tax rates in the next meeting on December 18.

The companies, under the banner of the All India Food Processors’ Association (AIFPA), which include ITC, Haldiram’s, Pepsico, Nestle, etc have written to FM. The letter speaks of an anxiety among their members that GST on their products might be increased.

The main thrust of the argument made by AIFPA in its communication is that the industry is already struggling due to various factors and even the 12% rate at which they are being taxed appears high and any increase as proposed will virtually kill the industry and major stakeholders, the farmers.

AIFPA says such a move to shift the GST rate from 12% to 18% might prove to be detrimental to the government as well. This might mean to suggest that the higher rate will lead to lower collections as the industry will be impacted severely in terms of revenue.

The existing rate of 12% applies to products like snacks, ready-to-eat products and pickles etc. AIFPA says it has been making requests to the government to bring this rate down to 5%.

The rumours on the possible increase in the GST rates have been doing the rounds for some time. The GST collections have been showing a downward curve amidst reports of the declining GDP grown rates to 5% and then to 4.5%. The government has made a series of announcements which are expected to result in reduced revenues for the fiscal year threatening the fiscal deficit when the budget for the next year will be submitted on Feb 1 next year. The FM herself has gone on record that the government at the centre and the states, in their over enthusiasm have kept reducing the GST rates on a range of products to even below the rates that prevailed before GST was brought in. All these have set several sectors in the economy wondering if their products could be the target for a possible rate increase.

The food sector has already witnessed a slowing down in the past few months. Many FMCG companies which had bet big on the rural markets are seeing the sales going down. The sales growth in the last quarter, July-Sep, in the rural markets, of 7.3% is the lowest seen in several years.

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