Indian processed foods should be tax free, says Assocham

18-Oct-2009 - Last updated on 19-Oct-2009 at 10:49 GMT

Processed foods and primary agricultural products, such as rice, atta and dal, should be classified as tax free when the government introduces its Goods and Service Tax (GST) next year, urges the Associated Chambers of Commerce and Industry of India (Assocham).

Its president, Dr Swati Piramal made the plea to the Union Finance and Food Processing Ministries. Zero-rating such products will be essential if the government wants to achieve its aim of increasing the national level of food processing to 10% from the current level of 2%, he added.

The organization believes that as the nation’s food processing and agricultural industries are poised for significant growth, both sectors will contribute indirectly to tax revenues. This will take the form of taxes on inputs, such as packaging-materials, food ingredients, plant and equipment and technology inputs.

Processed food products

The government should also introduce the new taxes in a sympathetic manner with uniform classification of all processed food products. Organizations which operate in various states should be allowed single registration and the ability to make payments at one central location with the aid of electronic form filling and payments.

In contrast to foods, certain processed items, such as tobacco products and alcoholic beverages, should be taxed at higher rates to make up the shortfall arising from zero rating processed foods and primary agricultural products, said Assocham.

India is the globe’s second largest producer of food commodities including fruits and vegetables, milk, wheat, rice and spices. But the nation’s processing sector accounts for only about 2 per cent of production compared with 88 per cent in the UK, 65 per cent in the US and 27 per cent in China.

Packaging materials

The food processing sector in India is known to have a big multiplier effect in terms of allied trades and industries. For every person working in food processing, about 100 people are said to work in related sectors such as agriculture, post-harvest handling, storage, transportation, packaging materials, food ingredients, fuel, utilities and distribution.

India plans to introduce the GST on April 1, 2010. It will include both a central and state GST applying uniformly to all taxable goods and services.