AMITY SCHOOL OF ECONOMICS

GST: A STRUCTURAL CHANGE IN

INDIRECT TAX POLICY SYSTEM OF INDIA

By:
Ipsa Khanna
Rashi Sachan
Shipra Barua
Vaishnavi Shekhawat

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INTRODUCTION
Goods and Services Tax or GST was
introduced in India in 2017 with the idea of
one tax for the whole nation.

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HISTORY:

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TYPES OF GST
• GST has four different kind of taxes namely:
CGST,SGST, IGST and UGST

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IMPACT OF GST ON
DIFFERENT SECTORS
Impact of GST on:
1.Banking Sector
2.Export-Import Sector
3.Education Sector
4.Energy Sector
5.Service Sector

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SHORT TERM EFFECTS

• The short-term impact despite the challenges has
been positive.
• It has led to the removal of multiple taxation
regimes and cascading tax effects.

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4 YEARS OF GST
• Previously, input credits from VAT could not be set off against Service Tax and
so on.
• We then benefit from a higher threshold limit for registration under GST.
• Introducing GST has also helped regulate the unorganized sector in India.
• Also curtailed the number of fraudulent transactions.
• GST has also reduced the burden on small businesses to a large extent.
• Introducing new reforms under common tax law is a massive benefit as well.
• While this tax system has done a lot to benefit the country, it is still in its
nascent stages and continues to face several challenges. 

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GST AND AGRICULTURE SECTOR

GST Act States:

- Farmers/Agriculturists are not liable to pay taxes.

- The Act defines an agriculturist as an individual or a Hindu Undivided

Family who undertakes cultivation of land by own labour, by the labour
of family, by servants or by hired labour. Hence, only small agriculturists
are exempted.

- Any person who operates a company for the purpose of undertaking

agriculture would be required to obtain GST registration.

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POSITIVE IMPACT OF GST ON

AGRICULTURAL SECTOR
• Hassle free movement of agricultural commodities: taxation under a single
rate would make the movement of agricultural commodities hassle free.
• Liberalizing the marketing: Implementation of GST simplified the interstate
trading resulting in liberalization of the marketing of agricultural products and
created a smooth transaction of goods.
• Helps farmers to receive best price for their products: Agricultural products
are subject to diversity in the taxation rates so GST would benefit the national
agricultural market.
• Affordable agro-machineries for small and marginal farmers: GST assists
in reducing the cost of heavy machinery required for producing agricultural
commodities.

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NEGATIVE IMPACT OF GST ON

AGRICULTURAL SECTOR
• Doubling of the tax burden: GST law does not include dairy Farming, poultry farming,
and stock breeding.
• Reverse cost of 18 percent passed onto producers/farmers: GST is responsible for the
leasing of warehouses by storage and storage agency at the reverse cost of 18%.
• Costlier imports of project machinery to store agricultural goods: The imports of
project machinery increased from 5% custom duty to 18% GST.
• Increase in prices of farm inputs like fertilizers, seeds, pesticides, and farm machinery
including tractor, tillers, drip and sprinkler irrigation equipment's.
• The unified tax system won't allow farmers to take advantage of inter-state price
variations.
• Taxes on bio-inputs and bio fertilizers to adversely affect organic produce.

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How India's game-changing tax

bypasses the farmer?
Produces and
Sowing season Farmers shop
harvest output
approaches for inputs
and sells it

• When the farmer is buying pesticides and fertilizers, he is buying everything in

retail and paying a good amount of GST on his purchases. On pesticides, he is
paying a GST rate as high as 18%.
• Similarly, the input manufacturer — the businessman the farmer is buying his
inputs from — is also paying GST on the raw material he uses to produce his
goods.
• But this is where the similarities end. The input manufacturer would go on to
reduce his liabilities by way of input credit — she/he can set off the tax liability on
sale proceeds against the GST paid on raw material. In stark contrast, the farmer
has that door closed on him.
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Why can't the farmer claim input credit for the

GST he paid while buying his inputs?
The reason is simple:
• The farmer's produce — like all farm produces — attracts nil GST, which
means GST won't come into the picture when he is selling his goods.

NIL Input
NIL GST
• It means the manufacturer of fertilizers and otherCredit
farm inputs can claim ITC,
but the farmer cannot. That makes farmers the businessmen in India for whom
the biggest bonus of the GST mechanism is out of bounds.
• The inability of farmers to claim input credit tax paid on farm inputs violates
the spirit and foundational principles of the GST system in India.

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Case of Mansa and Barnala districts,

Punjab
Fertilizers which earlier were exempted from tax now
faced a GST of 12% and pesticides and insecticides
having a 12.5% excise duty are bracketed under 18%
of the GST. To this news, fertilizer and pesticide
dealers of Mansa and Barnala districts pulled down
the shutters to protest the imposition GST from July
1.

Mansa fertilizer dealer association president Tarsem Chand said:

• 50kg bag of urea was sold at Rs. 284 to farmers but now with 12% GST, its cost would
increase by Rs. 35.
• The 50kg bag of di-ammonium phosphate (DAP) was sold for Rs 1020. Its cost would
increase by Rs. 123 per bag post GST.
• Though this burden will fall on farmers, our investment and paperwork too will increase.

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Case of Mansa and Barnala districts, Punjab…continued:

• As per agriculture department officials, nearly 7.5 lakh tones of DAP, 30 lakh tones
urea and 5,500 tones of pesticides and insecticides are consumed in Punjab every year.
• By factoring in the new tax, it would add a burden of Rs. 500 crore on the farmers
Meanwhile, Bhartiya Kisan Union’s general secretary Sukhdev Singh Kokri said:
• “The farmers, who are already reeling under severe economic hardships and
committing suicides, will be hit hardest due to the imposition of GST.”

=> The GST Council gave relief to farmers by lowering tax rates on fertilizers and tractor
parts hours before the country placed GST law. The GST Council reduced the GST rate on
fertilizers from 12% to 5%, while that on tractor parts was reduced from 28% to 18%.

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GST AND ITS IMPACT ON INDIAN TRADERS

Out of all the segments of
GST is a comprehensive, multi -
the business entities GST
stage, destination-based tax which
will have far reaching impact
is levied on every value addition.
on traders and would result
To offer greater transparency in the
in reducing the prices of the
businesses Goods and services tax
goods supplied by such
(GST) has been inaugurated by the
traders.
Government.

The new tax policy has

brought significant changes to
In the pre-GST regime when a trader used to
the existing tax system and
make inter-state purchase of goods, he was
business transactions. Even
charged central sales tax(CST) at the rate of
though the impact of GST on
2% which was not allowed as the input credit
retail sector is positive from
when he sold those products in his own state.
both taxation and operations
But in post-GST regime he shall be charged
point of view, the
Integrated GST (IGST) on his inter-state
implementation risks remain
purchases, the credit of which shall now be
due to the complexities of
available against the tax liability incurred on
adopting the new system
sale of goods.
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GST GUIDELINES FOR INDIAN

TRADERS
• GST Registration
• Input Tax Credit
• Filing of GST returns
• GST Composition Scheme
• Reverse Charge Mechanism
• Payment of Tax
• Stock Transfers
• GST Invoicing for Traders
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The implication of GST on traders vary from the nature of the

trade-
1.WHOLESALER 2.RETAILER

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POSITIVE IMPACT OF GST ON

INDIAN TRADERS
• Increased threshold limit for registration
• Composition levy increased
• Availability of ITC for Excise
• Availability of ITC for input services / business expenses
• Full and immediate ITC on purchase of capital goods
• Opening of markets across India

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NEGATIVE IMPACT OF GST ON

INDIAN TRADERS
• Blockage of ITC due to non-compliance by
supplier

• Stock transfer becoming a taxable event

• Compliance activity and costs

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Traders worry 5% tax on pulses under

GST will kill business
• Under the GST regime, 5% tax will be charged on packaged branded pulses,
according to All India Dal Mills Association.

• This will adversely affect the industry:

 Kill margins of dal mills
 Hitting business
 Curtailing benefits to farmers

• Industry players said pulses are an essential commodity and should be keep
free from the tax bracket. They said taxing branded packaged pulses at a time
when farmers do not get proper remuneration will hit industries and farmers.

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1) Small scale dal mills engaged in dal processing business sell pulses as small
registered brands into the regional markets.
2) Dal mills purchase raw pulses from the market
3) Then process it into dal of various grades
4) Sixty per cent comes out as dal while 25 per cent goes as cattle feed and the
rest is waste.

Another dal mill owner said:

"Maintaining the quality of dal is an expensive affair as we have to update to modern
technology. Levying tax on packaged pulses will kill the business."

Members of All India Dal Mills Association gave a memorandum to the union
minister of state for finance and corporate affairs Arjun Ram Meghwal to reconsider
the decision and exempt packaged branded pulses from the tax bracket.

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CONCLUSION
• India’s consolidated indirect tax reform is going in the right
direction. It would be great if the government gave a little
more importance to simplifying current compliances rather
than introducing a new scheme each time.

• There are problems, no doubt, but they are not unsolvable. 

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