1. Hefty VAT ‘mandi’ tax, ‘arthia’ levies still bane of India; here’s how bad it is

Hefty VAT ‘mandi’ tax, ‘arthia’ levies still bane of India; here’s how bad it is

The taxes range from a relatively modest 3.6% in Rajasthan to exorbitant levels in the major producers of grains — 11.5% in Haryana, 14.5% in Punjab and 13.5% in Andhra Pradesh

By: | New Delhi | Published: August 12, 2016 7:27 AM
Sources told FE that of the total taxes imposed by key grain-procuring states, the share of Punjab and Haryana is more than 55%. (Reuters) Sources told FE that of the total taxes imposed by key grain-procuring states, the share of Punjab and Haryana is more than 55%. (Reuters)

The foodgrain-surplus states continue to impose hefty levies such as VAT, ‘mandi’ tax, rural development cess and ‘arthia’ (agent) commission on procurement of wheat and rice carried out by Food Corporation of India (FCI) in collaboration with state government-owned agencies.

According to food ministry data, these government agencies paid close to R13,000 crore as levies for procurement of rice and wheat from farmers for the central pool stocks during the last fiscal. In FY12, the agencies had paid R9,469 crore as taxes to state governments. These levies inflate the Centre’s food subsidy budget.

Sources told FE that of the total taxes imposed by key grain-procuring states, the share of Punjab and Haryana is more than 55%.

Statutory levies are paid by FCI and state government agencies who follow decentralised procurement system to state governments on an average rate of 13% of the minimum support price (MSP) offered to farmers.

The taxes 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.

Among other key grain surplus states, Andhra Pradesh imposes a 12.5% tax while Odisha and Chhattisgarh impose 12% and 9.7% taxes on MSP, respectively.

FCI in collaboration with state government-owned agencies procure around 55 million tonne of rice and wheat annually from the farmers mostly in states such as Punjab, Haryana, Madhya Pradesh, Chhattisgarh, Odisha, Andhra Pradesh and Telangana. The grain procured is allocated for distribution in the Public Distribution System (PDS) and a portion is kept for strategic reserve purpose.

Terming the high rates of taxes and other levies on grain procurement unsustainable, Union food minister Ram Vilas Paswan recently said: “Time to time, we have requested the state governments to reduce taxes being imposed by them and since theses taxes or levies are statutory in nature, it is not possible for the Centre to take any unilateral decision on the matter.”

A food ministry official said the state government needs to reduce high state-level taxes in a phased manner as these levies are also adding to the country’s food security Bill.

“But we also acknowledge that these taxes on procurement are the key sources of revenue especially for Haryana, Punjab and other states,” the official noted.

The high-level committee on FCI restructuring chaired by former food minister Shanta Kumar, in its report last year, had stated that the statutory levies including commissions, which vary from less than 2% in Gujarat and West Bengal to 14.5% in Punjab, need to be brought down uniformly to 3-4% of MSP given to farmers.

“This should be included in MSP itself (states losing revenue due to this rationalisation of levies can be compensated through a diversification package for the next three-five years,” the panel had said in its report.

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