STUDY ON IMPACT OF GST ON AN INDUSTRY WITH

REFERENCE TO DEVELOPED AND DEVELOPING

ECONOMIES
GST (Goods & Services Tax)
GST is to streamline all the different types of indirect taxes and implement a single taxation
system. This system is called as GST ( GST is the abbreviated form of Goods & Services Tax).
The main expectation from this system is to abolish all indirect taxes and only GST would be
levied. As the name suggests, the GST will be levied both on Goods and Services.
GST is a tax that we need to pay on supply of goods & services. Any person, who is providing or
supplying goods and services is liable to charge GST.

How is GST applied?

GST is a consumption based tax/levy. It is based on the Destination principle. GST is applied
on goods and services at the place where final/actual consumption happens.
GST is collected on value-added goods and services at each stage of sale or purchase in the
supply chain. GST paid on the procurement of goods and services can be set off against that
payable on the supply of goods or services.The manufacturer or wholesaler or retailer will pay
the applicable GST rate but will claim back through tax credit mechanism.
But being the last person in the supply chain, the end consumer has to bear this tax and so, in
many respects, GST is like a last-point retail tax. GST is going to be collected at point of Sale.

The GST is an indirect tax which means that the tax is passed on till
the last stage wherein it is the customer of the goods and services who
bears the tax. This is the case even today for all indirect taxes but the
difference under the GST is that with streamlining of the multiple taxes
the final cost to the customer will come out to be lower on the
elimination of double charging in the system.
Let us understand the above supply chain of GST with an example
which is given in Rs. for the better understanding:

The current tax structure does not allow a business person to take tax credits. There are lot of
chances that double taxation takes place at every step of supply chain. This may set to change
with the implementation of GST.
Indian Government and Canadian Government are opting for Dual System GST. This system
will have two components which will be known as

Central Goods and Service Tax (CGST) and

State Goods and Service Tax (SGST).

The current taxes like Excise duties, service tax, custom duty etc will be merged under CGST.
The taxes like sales tax, entertainment tax, VAT and other state taxes will be included in SGST.

So, how is GST Levied? GST will be levied on the place of consumption of Goods and services.
It can be levied on :

Intra-state supply and consumption of goods & services

Inter-state movement of goods

Import of Goods & Service

DEVELOPED and DEVELOPING COUNTRIES

International Monetary Fund (IMF) Map by Economic Levels:

Blue=Developed, Orange=Developing, Brick=Undeveloped

As a rule, though, a developing economy is one where people have a lower standard of living
and less developed industries than other countries. However, it's all relative. Nineteenth-century
Britain was the most developed country in the world, but if you put it into the modern world it
might be considered a developing economy.
Population
One of the easiest ways to determine whether a country has a developing economy is in the
population. Developing economies tend to have higher birthrates. Traditionally, it has been
necessary to have a higher birthrate to maintain the population against diseases and bad living
conditions. In a developing country things are a little better, but the lack of contraceptives and
sex education means that people keep having babies.

Death rates are also higher and life-spans are shorter because medical care isn't quite as good as
in developed economies, but it doesn't compensate for the high birthrate. Because of that, the
population in a developing economy rises much faster than in a developed economy.
Economy
A developing economy can also be determined in part by the way an economy makes money. In
a developing economy a country relies on its natural resources. In a developed economy the
country makes use of information and communication technology - computers and the Internet.
It would seem like just taking a look at the economy would be the best way to see how
developed a country is, but that is probably the most deceptive characteristic of all. Canada is a
perfect example of why; it has traditionally relied on its logging industry for most of its money,
but it does have the lower birth and death-rate and longer life-span of a developed economy.
Canada also has a high literacy rate. It is definitely a developed economy; it just relies on its
logging industry.

Graph Showing the Average Household Income in

Developing Economies

How much money the government spends on education is also important. If there is a low
literacy rate it means that the population can only work low skill jobs. They can't even do the
higher skill jobs necessary for a developed economy.

Benefits of GST Bill implementation on different countries

The tax structure will be made lean and simple

The market will be a unified market which may translate into lower business costs. It can
facilitate seamless movement of goods across states and reduce the transaction costs of
businesses.

It is good for export oriented businesses. Because it is not applied for goods/services
which are exported out of Countries.

In the long run, the lower tax burden could translate into lower prices on goods for
consumers.

The Suppliers, manufacturers, wholesalers and retailers are able to recover GST incurred
on input costs as tax credits. This reduces the cost of doing business, thus enabling fairer
prices for consumers.

It can bring more transparency and better compliance.

Number of departments (tax departments) will reduce which in turn may lead to less
corruption

More business entities will come under the tax system thus widening the tax base. This
may lead to better and more tax revenue collections.

Companies which are under unorganized sector will come under tax regime.

Challenges for implementing Goods & Services Tax system

This includes a complicated procedure to implement this bill.

To implement the bill (if cleared by the Parliament) there has to be lot changes at
administration level, Information Technology integration has to happen, sound IT
infrastructure is needed.

GST, being a consumption-based tax, states with higher consumption of goods and
services will have better revenues. So, the co-operation from state governments would be
one of the key factors for the successful implementation of GST

Since GST replaces many cascading taxes, the common man may benefits after implementation.
But it all depends on what rate the GST is going to be fixed at? Also, Small Traders (based on
Annual Business turnover) may be exempted from it.
NOTE: France was the first country to introduce this system in 1954. Nearly 140 countries are
following this tax system. GST could be the next biggest tax reform in India. This reform could
be a continuing process until it is fully evolved. We need to wait few more months for more
details on Goods & Services Tax system.

Here Im going to judge the impact of GST on Agriculture Industry. The

reason behind taking Agriculture as a industry is that it has a huge impact on
both developed and developing economies of the world. Reasons of taking
Agriculture industry into consideration are mentioned below in detail.

Agriculture
For decades Agriculture has been associated with production of essential food crops. At present,
agriculture above and beyond farming includes forestry, dairy, fruit cultivation, poultry, bee
keeping, mushroom, arbitrary, etc. Agriculture could be referred to as the production, processing,
promotion and distribution agricultural products. Agriculture plays a critical role in the entire life
of a given economy. Agriculture is the backbone of economic system of a given country. In
addition to providing food and raw material, agriculture also provides employment opportunities
to very large percentage of population.
Below are the importances of agriculture:

Source of Livelihood
The main source livelihood of many people is agriculture. Approximately 70 % of the people
directly rely on agriculture as a mean of living. This high percentage in agriculture is as a result
of none development of non-agricultural activities to absorb the fast growing population.
However, most people in developed countries do not engage in agriculture.
Contribution to National revenue
Agriculture is the main source of national income for most developing countries. However, for
the developed countries, agriculture contributes a smaller per cent age to their national income.
Supply of Food as well as Fodder
Agricultural sector provides fodder for domestic animals .Cow provides people with milk which
is a form of protective food. Moreover, livestock also meets peoples food requirements.
Significance to the International Trade
Agricultural products like sugar, tea, rice, spices, tobacco, coffee etc. constitute the major items
of exports of countries that rely on agriculture. If there is smooth development practice of
agriculture, imports are reduced while export increases considerably. This helps to reduce
countries unfavorable balance of payments as well as saving foreign exchange.
Marketable Surplus
The growth of agricultural sector contributes to marketable surplus. Many people engage in
manufacturing, mining as well as other non- agricultural sector as the nation develops. All these
individuals rely on food production that they might meet from the nations marketable surplus.
As agricultural sector development takes place, production increases and this leads to expansion
of marketable surplus. This may be exported to other nations.
Source of Raw Material
The main source of raw materials to major industries such as cotton and jute fabric, sugar,
tobacco, edible as well as non-edible oils is agriculture. Moreover, many other industries such as
processing of fruits as well as vegetables and rice husking get their raw material mainly from
agriculture.
Significance in Transport
Bulks of agricultural products are transported by railways and roadways from farm to factories.
Mostly, internal trade is in agricultural products. Moreover, the revenue of the government, to a
larger extent, relies on the success of agricultural sector.
Foreign Exchange Resources

The nations export trade depends largely on agricultural sector. For example, agricultural
commodities such as jute, tobacco, spices, oilseeds, raw cotton, tea as well as coffee accounts for
approximately 18 % of the entire value of exports of a country. This demonstrates that
agriculture products also continue to be important source of earning a country foreign exchange.
Great Employment Opportunities
Construction of irrigation schemes, drainage system as well as other such activities in the
agricultural sector is important as it provides larger employment opportunities. Agriculture sector
provides more employment opportunities to the labor force that reduce the high rate of
unemployment in developing countries caused by the fast growing population.

Economic Development
Since agriculture employs many people it contributes to economic development. As a result, the
national income level as well as peoples standard of living is improved. The fast rate of
development in agriculture sector offers progressive outlook as well as increased motivation for
development. Hence, it aids to create good atmosphere for overall economic development of a
country. Therefore, economic development relies on the agricultural growth rate.
Source of Saving
Development in agriculture may also increase savings. The rich farmers we see today started
saving particularly after green revolution. This surplus quantity may be invested further in the
agriculture sector to develop the sector.
Food Security
A stable agricultural sector ensures a nation of food security. The main requirement of any
country is food security. Food security prevents malnourishment that has traditionally been
believed to be one of the major problems faced by the developing countries. Most countries rely
on agricultural products as well as associated industries for their main source of income.

Impact of GST specifically in Agricultural Industry on Developed Countries:

Special allowance in agricultural income Of the selected countries only Germany and
France have special agricultural income allowance in the calculation of income tax.

In Germany all individuals with agricultural income are eligible to income allowance as
long as gross income is below EURO 32,250 (single people) or 64,500 (married people)
and gross agricultural income is higher than the income allowance.

The income allowance was EURO 700 (single people) or EURO 1,400 (married people)
in 2001. The income allowance is independent of the method of income calculation. In
France the government work for increasing the part of farmers who keep account.

A farmer that keeps accounts is therefore entitled to a 20% reduction in the taxable
agricultural income. In Switzerland it is a specific family allowance for small farmers
below a certain income level. If the pure income is below CHF 32,000 per farm
family22, then farm families are given a monthly payment for each child.
The amount is regionally differentiated (valleys and mountain areas). There is also a
higher amount from the third child onwards. The yearly payments vary between CHF
1,980 and CHF 2,280 per child per year. The total amounts of this support measure were
102 million CHF in 1997.

Due to an increase of the payments in January 2002, own calculations suggest that the
total amount of the Familienzulage will probably be around 120 million CHF in 2002.

The family allowance for small farmers is mentioned in the Swiss notifications on
domestic support to the WTO as a green box measure.

Impact of GST specifically in Agricultural Industry on Developind Countries:

The main issue in the application of GST to food is the impact it would have
on those living at or below subsistence levels. For those at the bottom of the
income scale, it doubtless accounts for an even higher proportion of total
expenditures and incomes.

Taxing food could thus have a major impact on the poor. By the same token, a
complete exemption for food would significantly shrink the tax base. Food
includes a variety of items, including grains and cereals, meat, fish, and
poultry, milk and dairy products, fruits and vegetables, candy and
confectionary, snacks, prepared meals for home consumption, restaurant
meals, and beverages.In India, while food is generally exempt from the
CENVAT, many of the food items, including food grains and cereals, attract
the state VAT at the rate of 4%.

Exemption under the state VAT is restricted to unprocessed food, e.g., fresh
fruits and vegetables, meat and eggs, and coarse grains. Beverages are
generally taxable, with the exception of milk.

In the rural sector, the predominant distribution channel for unprocessed food
would be either a direct sale by the farmer to final consumers or through
small distributors/retailers.

Even where food is within the scope of the GST, such sales would largely
remain exempt because of the small business registration threshold. Given
that food is currently exempt from the CENVAT, the GST under a single-rate,
comprehensive-base model would lead to at least a doubling of the tax
burden on food (from 4% state VAT to a combined GST rate of 8%).

The alternative of exempting food altogether (or zero rating) would not be
any better as it would have an adverse impact on Revenue Neutral Rate.
Thus, prices of the agricultural items and services are expected to rise after
the implementation of the GST, although the overall inflationary impact of the
proposed indirect regime will be negative.

CONCLUSION

National Agricultural Market in the light of GST In order to achieve National Market in
agriculture, there is need for harmonization in the provisions of Acts. The implementation of
GST is expected to facilitate the implementation of National Agricultural Market on account of
subsuming all kinds of taxes/cess on marketing of agricultural produce as well as it would ease
interstate movement of agricultural commodities which would improve marketing efficiency,
facilitate development of virtual markets through warehouses and reduce overhead marketing
cost. Agricultural commodities are perishable in nature in varying degrees therefore trade is
influenced by the time required for transportation. The Economist reports that long distance
trucks are parked for 60 per cent of the time during transportation. The simple uniform tax
regime is expected to improve the transportation time, and curtail wastage of precious food. It is
quite difficult to implement tax support provided by the Government for an agri-commodity due
to heterogeneous policies adopted by the different states in Developing countries. The
implementation of GST is expected to bring uniformity across states and centre which would
make tax support policy of a particular commodity effective. The ease of availing tax credit
under GST regime is expected to boost inter-state trade leading to achieving the objectives of
National Agricultural Market.

VENIKA MALIK
BBA- 2ND YEAR
III SEMISTER
SEC- C
15021021144