With the rollout of the goods and services tax (GST) from July 1, the Food Corporation of India (FCI) is likely to save around Rs 5,000 crore annually on its tax bill. This is because it won’t have to pay 5% value added tax (VAT) the corporation pays for procurement of foodgrains along with various other state-level levies. The GST council had on Thursday announced exemption of foodgrains from any levy under the new taxation regime.
However, FCI has communicated to the finance ministry, seeking clarity on various other state government-imposed levies like mandi tax, arthia (agent) commission, rural development cess, infrastructure development cess, etc, on rice and wheat procurement being carried out by the corporation in collaboration with state government agencies.
The state governments impose these levies on the sale and purchase of grain. It is estimated that FCI paid more than Rs 12,000 crore as taxes on grains purchased in states last fiscal, of which the VAT component was around Rs 5,000 crore.
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“We have been talking to the finance ministry on whether the state government-imposed levies will be subsumed in GST or not,” an FCI official told FE. The official said once these levies are subsumed, the corporation could save a substantial amount towards payment of taxes on grain procurement.
FCI had paid Rs 10,336 crore in 2015-16 towards VAT, market fee or mandi taxes and development fee to key rice and wheat procuring states such as Punjab, Haryana, Andhra Pradesh, Uttar Pradesh, Madhya Pradesh, Andhra Pradesh and Odisha. Of this, the VAT component was around Rs 3,500 crore. In 2014-15, FCI had paid more than Rs 4,700 crore to states as VAT for grain purchased from farmers.
Statutory levies like VAT, mandi tax, arthia (agent commission) and the like paid by the corporation to state governments on an average account for 13% of the minimum support price to farmers. The levies range from a relatively modest 3.6% in Rajasthan to exorbitant levels — 11.5% in Haryana, 14.5% in Punjab and 13.5% in Andhra Pradesh, the major producers of grains.
Experts say following the rollout of GST, the taxes to be paid for grain procurement by FCI are likely to fall sharply, which would be reflected in the food subsidy budget. The prices of foodgrains, especially wheat and rice, are expected to come down. The country produces close to 200 million tonnes of rice and wheat annually. Around 60-65% of the output is traded.
“We need more clarity on state government-imposed levies. States such as Andhra Pradesh, Punjab and Haryana have been levying more than 14% taxes (along with VAT), which has driven away private trade from the state,” Siraj Hussain, former agriculture secretary and chairman and managing director of FCI, said.