Food processing and local purchase of grains by private players in Punjab are expected to get a boost as the Goods and Services Tax (GST) has brought the tax burden on grain trade in the state at par with competing peers. Punjab has been the largest contributor to the central grain pool of rice and wheat for years, but purchase by the private firms has been minimal due to assorted taxes. Prior to GST, the Food Corporation of India (FCI) in collaboration with Punjab government agencies like Pungrain and market used to pay 14.5% taxes on the minimum support price (MSP) given to farmers on procurement of rice and wheat for central pool stock. FCI and state agencies purchase most of the surplus rice and wheat from the mandis as private players source grain, especially wheat, from Uttar Pradesh which had lower taxes and MPS operations were not efficient there.
According to Punjab Mandi Board officials, after the abolition of VAT (5%) and ID cess (3%) following the implementation of GST, government agencies or those procuring grain from mandis in the state would now pay only 6.5% taxes — mandi fee (2%), arthia (commission agent) fee (2.5%) and rural development cess (2%). The Punjab government officials said that the existing rate of tax (6.5%) on procurement of grain in the state is quite comparable to post-GST tax structure of key wheat growing states like Uttar Pradesh (4.2%) and Madhya Pradesh (3.9%) as northern state produce huge surplus of wheat and rice. Out of the total wheat and rice procurement of around 60 million tonne annually by FCI, Punjab contributes one third of the total procurement.
Earlier, private traders and flour millers based in Punjab were sourcing wheat from Uttar Pradesh as the state had 8.27% taxes prior to roll out of GST and prices used to rule below MSP. “The higher taxation and levies drove out the private players from grain purchase and distort the market, impacting processing and value-added industry,” Naresh Ghai, a flour miller from Ludhiana who often procures wheat from Uttar Pradesh told FE.
“The state can emerge as a hub for units using wheat as raw material like flour mills, noodles and pasta manufacturing, biscuits and bakery, etc. But all these years, wheat based processing units always felt unenthusiastic to buy wheat from Punjab due to very high taxes and statutory levies which touched 14.5%,” a latest report prepared by ICRIER has stated.
The report titled “getting Punjab agriculture back on high growth path,” by Ashok Gulati, Ranjana Roy & Siraj Hussain has also noted the Punjab government charges heavy commission/levies/cess on the purchase of wheat and rice, amounting to 14.5%, which is much higher than the 2% in Gujarat and West Bengal. “This makes the food processing industry extremely reluctant to buy their raw material from Punjab,” it stated.
In 2015, a High-Level Committee (HLC) for restructuring FCI chaired by former food minister Shanta Kumar, in its report, 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, and this should be included in MSP itself. The report had stated that states like Punjab and Haryana losing revenue due to this rationalisation of levies can be compensated through a diversification package