GST: Zero duty will help farmers but blow hole in state coffers

The total state levies on the basic grain purchase price — not counting the 2.5 per cent fee payable to commission agents (arhtiyas) — thus comes to 12 per cent.

Written by Harish Damodaran , Anju Agnihotri Chaba | New Delhi/jalandhar | Updated: May 20, 2017 11:34 am
GST, GST regime, goods and services tax, GST tax slab, taxation, GST farmer, farmer tax, indian express news, india news, business news Haryana and Madhya Pradesh, too, charge 5 per cent VAT and 2 per cent market/mandi fees. Besides, Haryana, like Punjab, has a 2 per cent rural development cess, while MP levies a 0.2 per cent “nirashrit shulk” (destitute fee) on paddy and wheat. (Representational image)

Zero duty for all primary produce — from foodgrains, oilseeds, fruits & vegetables, sugarcane/gur, milk and spices, to fish and meat — under the Goods and Services Tax (GST) regime may be a shot in the arm for Indian agriculture and farmers. But the decision, approved at the two-day meeting of the GST Council that ended in Srinagar Friday, could blow a hole in the finances of many states.

Punjab, for instance, currently charges a 5 per cent value added tax (VAT) on both wheat and paddy. In addition, it imposes an infrastructure development cess of 3 per cent, a rural development cess of 2 per cent and a market fee of 2 per cent. The total state levies on the basic grain purchase price — not counting the 2.5 per cent fee payable to commission agents (arhtiyas) — thus comes to 12 per cent.

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Taking aggregate wheat arrivals of 11.90 million tonnes (mt) and 16.60 mt of non-basmati paddy from the 2016-17 crop in Punjab’s mandis, the 12 per cent levy at the corresponding minimum support prices of Rs 1,625 and Rs 1,510 per quintal for the two grains would have generated revenues of over Rs 5,300 crore for the state government.

Moreover, this is true not just for Punjab.

Haryana and Madhya Pradesh, too, charge 5 per cent VAT and 2 per cent market/mandi fees. Besides, Haryana, like Punjab, has a 2 per cent rural development cess, while MP levies a 0.2 per cent “nirashrit shulk” (destitute fee) on paddy and wheat. Add to these the 2.5 per cent arhtiya commission in Haryana — this fee in MP is 2 per cent and payable to farmer cooperative societies — the total taxes/levies work out to 11.5 per cent for the former and 9.2 per cent in the latter.

In the other major agrarian states, the total taxes/levies range anywhere from 5.86 per cent in Bihar to 13.22 per cent in Andhra Pradesh (see chart). The Commission for Agricultural Costs & Prices (CACP) has estimated these levies on paddy and wheat to have realised almost Rs 10,000 crore in 2015-16 for Punjab, Haryana, MP, AP, Chhattisgarh and Odisha alone.

“Zero duty on farm produce is most welcome because it will give a huge fillip to food processing. The current levies make it unviable for even flour mills to come up in a grain bowl such as Punjab. But the question is how are the states going to recoup the revenue loss from the GST rate being made zero for most agri-produce?”said Ashok Gulati, former CACP chairman.

“We were told in various GST-related meetings that the Centre would compensate us for our losses for the next five years. But we have no clue what will happen after the five years. I suppose we will have to by then generate resources from other avenues”, noted Ravinder Singh Cheema, former vice chairman of the Punjab Mandi Board.

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