The Group of Ministers (GoM) on GST rationalisation is reviewing a proposal to lower the tax on key agricultural inputs such as drip irrigation systems, fertilisers and pesticides, Finance Minister Nirmala Sitharaman told the Parliament during her reply to the discussion on the Finance Bill on March 25.
The panel is also assessing GST rates on food sector-related items, she added.
Bharatiya Kisan Sangh (BKS) and other farm leaders have been demanding that the Centre must do away with Goods and Services Tax (GST) on agricultural equipment and inputs, which they feel is a big burden on farmers, and should be waived off to lower the cost of cultivation.
Defending the current tax structure, FM Sitharaman rejected claims that GST is regressive. “The allegation that GST is not progressive is unfounded,” she said. FM Sitharaman pointed out that only a small portion of consumer goods is taxed at the highest rate under the GST framework. “The 28 percent GST rate is on less than 3 percent of common man consumption items,” she said.
Average GST Rate Lower
Nirmala Sitharaman said that the overall tax burden has reduced under the GST regime compared to the previous indirect tax system. “As of March 2023, the average GST rate is 12.2 percent against 15 percent in the pre-GST era,” she said.
She also clarified that religious offerings remain exempt from GST. “Prasad at temples and gurdwaras is exempt from GST.”
In May 2017, a Reserve Bank of India study estimated that the weighted average GST rate was 14.4 percent, which has declined since GST was rolled out in 2017.
GST Cess
Addressing concerns about the GST compensation cess, the Finance Minister said that the cess is being collected to repay loans taken to compensate states for revenue shortfalls in the initial years of GST implementation. “We are collecting cess to repay the GST loan, which should be ending by early 2026,” she said.
The cess is being utilised to repay Rs 2.69 lakh crore worth of loan that the Centre had taken to compensate states for GST revenue loss in FY21 and FY22.
The compensation cess was initially brought in for five years to make up the revenue shortfall of states, following the implementation of the Goods and Services Tax (GST). Although the compensation cess concluded in June 2022, the funds amassed are allocated for repaying the interest and principal of the Rs 2.69 lakh crore borrowed by the Centre during the COVID-19 pandemic.
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