The 47th meeting of the GST Council was held last week under the chairmanship of Finance Minister Nirmala Sitharaman. In the meeting, the GST Council decided to levy Goods and Services Tax (GST) on certain food items, which were exempted from GST till now. These products also include pre-packaged and pre-labeled curd, lassi and buttermilk.
Inflation in the country is already at a high level for many years. Some decisions taken in the recent meeting of the GST Council can further intensify the impact of inflation. In fact, the GST Council has recommended abolishing the exemption from GST on certain food items including curd, lassi and buttermilk. If this is implemented, then the branded milk products with packets will become expensive. This will cut people’s pockets more on one hand, but this decision can also give an opportunity to earn from the shares of some companies. At least the brokerage firm ICICI Securities believes so.
Important meeting of the council held last week
The 47th meeting of the GST Council was held last week under the chairmanship of Finance Minister Nirmala Sitharaman. In the meeting, the GST Council decided to levy Goods and Services Tax (GST) on certain food items, which were exempted from GST till now. These products also include pre-packaged and pre-labeled curd, lassi and buttermilk. This decision of the council will affect dairy companies in the form of additional cost and dairy companies can recover it from the customers. In the meeting, the council said, ‘Till now, certain food items, cereals etc. were kept out of the purview of GST, which were not branded. It is now suggested that the exemption being given on pre-packaged and pre-labeled food items under the Legal Metrology Act, including packaged curd, lassi, buttermilk etc., should be abolished.
Brokerage firm estimates so much tax
Brokerage firm ICICI Securities has said in a research note that GST can be levied at the rate of 5 per cent on curd and lassi. At present there is no GST on these food items. The company said, “We believe that the new tax of 5 per cent along with the increase in the cost of procurement of milk will put additional burden on the dairy companies. To reduce this burden, companies can increase the price. In such a situation, customers will have to spend more money than before. The brokerage firm also said that some part of the new tax, which is going to be levied at the rate of 5 per cent, will be recovered by the companies by claiming input tax credit. However, even after this, there is a possibility of 2-3 percent burden on the customers.
There is no GST on packaged milk
Research analysts say that curd is an important product for most dairy companies. The share of curd and lassi in the income of dairy companies is 15 to 25 percent. Some dairy products like ice cream, cheese, ghee and paneer have already come under the purview of GST. Analysts at ICICI Securities believe that now with the introduction of GST on curd and lassi, most dairy products will come under the ambit of GST. However, packaged milk is still kept out of the purview of GST.
Dairy companies will not suffer
The brokerage firm added that this decision is not going to have any significant impact on dairy companies. Whatever effect this decision will have, it will be on the end user i.e. the buyers. The firm said that the listed dairy companies are going to benefit due to the solid return ratio and growth prospects. Citing this reason, ICICI Securities has retained the Buy rating for Heritage and Dodla. At the same time, the brokerage firm has given Hold rating to Hatsun Agro Products and Parag Milk Foods.
