The Group of Ministers (GoM) on GST rationalisation is evaluating a proposal to reduce the tax rates on essential agricultural inputs, including drip irrigation systems, fertilisers and pesticides. Finance Minister Nirmala Sitharaman made this announcement in Parliament on March 25 during her reply to the discussion on the Finance Bill.
GST Rates on the Food Sector Also Under Review
The panel is also assessing GST rates on food-related items, a move that could provide significant relief to consumers and businesses in the sector.
Several farmer groups, including Bharatiya Kisan Sangh (BKS), have been urging the government to eliminate GST on agricultural equipment and inputs, arguing that these taxes increase the cost of cultivation and burden farmers.
GST is Not Regressive, Says FM Sitharaman
Defending the GST structure, FM Sitharaman dismissed allegations that GST is regressive. "The claim that GST is not progressive is unfounded," she asserted. She highlighted that only a minor share of consumer goods attracts the highest tax rate. "The 28% GST rate applies to less than 3% of items consumed by the common man," she stated.
Lower Average GST Rate Compared to Pre-GST Era
The Finance Minister pointed out that the average GST rate has declined since its introduction. "As of March 2023, the average GST rate stands at 12.2 percent, compared to 15 percent under the previous indirect tax regime," she said.
She further clarified that religious offerings remain outside the GST framework. "Prasad at temples and gurdwaras is exempt from GST," she noted.
A 2017 Reserve Bank of India study initially estimated the weighted average GST rate at 14.4 percent. However, this rate has seen a steady decline over the years.
GST Compensation Cess to Continue Until 2026
On concerns regarding the GST compensation cess, FM Sitharaman explained that it is being used to repay loans taken to compensate states for revenue shortfalls during the early years of GST implementation. "We are collecting cess to repay the GST loan, which is expected to be fully repaid by early 2026," she confirmed.
The cess was originally implemented for five years to offset state revenue losses following the introduction of GST. Though the official compensation period ended in June 2022, the funds collected continue to be allocated towards repaying the Rs 2.69 lakh crore loan the Centre borrowed during the COVID-19 pandemic.
Implications of the GST Rationalisation Review
If the GoM recommends a tax reduction on agricultural inputs, it could lower farming costs and benefit millions of farmers. Additionally, a review of GST rates in the food sector may lead to changes in tax slabs, impacting businesses and consumers alike.
With deliberations ongoing, stakeholders across the agriculture and food industries await further updates on potential GST reforms aimed at fostering economic growth and reducing tax burdens.
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