New Delhi: Many mills and packaging companies have started distributing food items in packets weighing more than 25 kilogram to avoid the newly imposed 5 per cent Goods and Services Tax (GST) levy on pulses, cereal, and flour.
As per the new tax norm, all packaged, labelled food items including cereal, flour and pulses weighing below 25 kilogram will attract a 5 per cent GST.
Even as the 5 per cent GST applies to the retail shopkeepers who buy sacks or packets of food items weighing less than 25 kilogram and sell the product in loose quantities, the tax levy does not burden the consumer. It is on the traders and retail sellers.
However, as the retail sellers can’t levy the consumers a share of this tax, they would increase the product's price to compensate for the GST they paid. To avoid this, the mills and companies upgrade the packaging to 25 kilograms and 30 kilograms of food grains, flour or pulses.
For example, a retailer buys a 30-kilogram rice sack from the wholesaler, without GST. The retailer then sells the rice in loose quantities to the consumers at the previous rate itself, without raising the price.
Loss in tax revenue?
Before July 18, all branded food items had attracted GST regardless of the weight of the package. From July 18, the new norm specifying ‘packaged and labelled’ food items has set the taxable weight of food packages at anything less than 25 kilogram.
In effect, the tax levy on all branded packages of flour, and cereals above 25 kilogram earlier, does not exist anymore. Besides, as the companies and mills raise the package weight of items to be sold to retailers above 25 kilogram to avoid GST, the Government is expected to take a hit in the tax revenue.
Though the decision was intended to prevent tax evasion, with this move, the Government would not even get the tax it used to collect so far, said R Hari, Grain Merchants Association executive member.
Fresh labels to pack 26 kilogram in sacks of 25 kilogram
Many mills, which have stocked 25-kilogram sacks or bags in large quantities, have started printing new labels to package food products weighing 26 kilogram in the 25-kilogram sacks to avoid the GST levy.
As the 26-kilogram package does not adhere to the standard package weight (example: 25 kilogram or 30 kilogram) specification fixed by the Legal metrology, there would be a specific mention of the same on the newly printed label.