GST and Rural India: When doing business is taxing for farmers

Maharashtra’s nascent farmer producer companies are struggling to cope with the new indirect tax regime

Written by Parthasarathi Biswas | Pune | Updated: September 7, 2017 9:31 am
Maharashtra, Agriculture sector GST, GST, Farmers GST, Harvest season, Farmer produce, India news, Indian Express Farmers at a tur procurement centre operated by the Sarvoday Producer Company at Karmala in Solapur district of Maharashtra.

Mention goods and services tax (GST) and it evokes a frown on Bhausaheb Baburao Thorat’s face. PG Farmsys Agrovet Producer Company Ltd, of which Thorat is director, is into procuring moong (green gram) and tur (pigeon-pea) from its 345 farmer-shareholders during the harvesting season for sale later on when prices are normally higher. This farmer producer company (FPC), based at Pimpri Gawali village in Parner taluka of Ahmednagar district, had plans to enter the retail market for branded dal that can potentially fetch even better returns than from raw un-milled pulses sales.

But those plans have been shelved, following the imposition of a 5 per cent GST on branded foodgrains, which include milled (i.e. de-husked and split) pulses. “The idea behind value-addition through processing and creating a brand is to enable our farmers to realise more for the produce they are supplying. But if such a branded value-added product is now going to be taxed at 5 per cent, what’s the fun?”, asks Thorat.

FPCs are companies that are essentially cooperatives, even though registered under the Centre’s Companies Act, as opposed to the cooperative acts of the concerned states where they operate. While akin to private limited companies, the maximum limit of 50 members is, however, not applicable to FPCs. Also, the shareholders in their case have to necessarily be primary producers.

“The current government at the Centre wants to double farmers’ income. When FPCs are companies of farmers, why should their incomes or products be taxed in the first place?”, points out Thorat.

Maharashtra has 205 FPCs federated under the Maha Farmers Producer Company Ltd or MAHA-FPC. During 2016-17, 149 FPCs — mainly in Osmanabad, Latur, Buldhana, Ahmednagar, Akola, Hingoli and Yavatmal districts — undertook procurement of 33,227 tonnes of tur from 26,803 farmer-members. These purchases were done under the government’s price support scheme (PSS), wherein the FPCs bought the crop from their members at the official minimum support price (MSP) of Rs 5,050 per quintal and delivered these to the godowns of the Central and State Warehousing Corporations after cleaning and grading. The FPCs registered a total turnover of Rs 167.79 crore on PSS operations, which was inclusive of a one per cent handling fee charged on the MSP paid to farmers.

“We want to grow beyond doing PSS business. But the 5 per cent GST on branded pulses puts a dampener on the plans, especially of FPCs that are eyeing the retail market with a view to maximise their farmer-members’ share in the consumer rupee,” notes Yogesh Thorat, managing director of MAHA-FPC. According to him, GST’s cost is not just about adding 5 per cent to the product price: “There is also the cost of compliance. One must keep in mind here that FPCs are all in rural areas. For their owners, who are farmers, this is the first experience in corporate dealing. Uploading daily invoices and filing returns thrice every month is certainly a deterrent, just when they have started doing business”.

PG Farmsys Agrovet Producer Company, like most other FPCs, hasn’t so far even applied for a GST registration. “It involves investing in computers and the GST billing software, which alone costs around Rs 18,000. And who will do the uploading and filing of returns?”, says Bhausaheb Thorat, whose FPC posted a turnover of just under Rs one crore in 2016-17. That figure was well above the

Rs 20 lakh threshold, beyond which any business has to mandatorily register under GST. It also exceeded the Rs 75 lakh turnover limit to opt for the composition scheme, which entailing paying a flat one per cent tax (sans availing any credit for taxes paid on inputs) and filing only summarised returns on a quarterly basis.

With 822 farmer-shareholders, the Godavari Valley FPC, based at Pangra in Hingoli district’s Basmath taluka, clocked a turnover of Rs 5.45 crore in the last fiscal, much of it from tur procurement under the PSS. It has invested over Rs 2 lakh in the systems to enable GST compliance. Even while slowly getting used to filing returns, the FPC’s director Suryaji Dattarao Shinde admits to outsourcing the job to a chartered accountant in Aurangabad. “We share all our data online with the firm. There’s no alternative because how can you expect to find proper chartered accountants or company secretaries in and around Pangra,” he observes.

The Swaroop Shetkari Producer Company Ltd had a turnover of Rs 1.5 crore in 2016-17. Nearly half of this came from the supply of seeds, fertiliser and pesticides to its 250-odd members, who are mostly farmers belonging to Sultanpur village in Aurangabad’s Khultabad taluka. Being in the agri-inputs business requires the FPC to submit purchase, sale and opening/closing stock data on a daily basis to the companies concerned. “The companies say it is necessary for their GST compliance,” remarks Deepak Pandurangrao Chavan, director. His FPC, too, is in two minds about foraying into branded dal retailing because of the levying of the 5 per cent GST.

Maharashtra’s FPCs have been hit equally by the imposition of a 5 per cent GST on oilseeds, be it branded or otherwise. The Godavari Valley FPC has plans to procure and sell about 10,000 tonnes of soyabean that its farmer-members would supply in the coming kharif harvesting season. MAHA-FPC intends going a step further, by entering into a short-term contract for delivering 20,000 tonnes of this year’s soyabean crop, sourced from 51 FPCs, on the National Commodity and Derivative Exchange’s platform. The delivery is to take place within 15 days of the contract being executed, with the purchases being done by institutional buyers through the platform. They are likely to pay more than what farmers may realise by selling in wholesale mandis during the peak harvesting period. The contract is yet to be signed. And in the meantime, the 5 per cent tax has come as a bolt from the blue.

“We don’t understand the logic of even unbranded oilseeds attracting 5 per cent GST, when cereals and pulses are exempt. The government never thinks about farmers or organisations representing them before taking such decisions,” complains Yogesh Thorat.

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