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Wednesday, Sep 25, 2002

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State levies issue likely to hit paddy procurement

Harish Damodaran

NEW DELHI, Sept. 24

WITH barely a week to go for the start of the new kharif marketing season, the Centre is locked in a bitter dispute with major grain producing States over its decision to impose a 4 per cent cap on various local taxes and levies on foodgrains to be procured for the Central pool.

The move — to be effective from the forthcoming kharif marketing season beginning October — would result in annual revenue losses of over Rs 1,200 crore for the Punjab, Haryana and Andhra Pradesh Governments, part .

Although the Centre is yet to announce the minimum support price (MSP) for the paddy to be procured during the coming kharif season, it has already instructed the Food Corporation of India (FCI) and other official agencies to henceforth procure grains for the Central pool at a `gross procurement price' that is inclusive of the MSP plus a four per cent allowance for State taxes. Those States Governments imposing additional levies over and above the four per cent cap are required to either waive these altogether or deduct the same from the price paid to farmers.

Currently, Punjab imposes a 4 per cent purchase tax, a 2 per cent market fee, a 2 per cent `rural development' cess and a one per cent `infrastructure cess' on foodgrains purchased from mandis in the State. Besides this, the arhtia or commission agent's `dami' (fee) comes to another 2.5 per cent.

The Haryana Government, too, imposes all these levies, save the one per cent `infrastructure cess'. In Andhra Pradesh also, the incidence of various local taxes and levies adds up to 10.5 per cent. Since all these are charged on the MSP, the burden of paying them ultimately devolves on the Centre, which has to re-imburse the official agencies for all their expenses.

The taxes on foodgrains are a veritable cash cow for the State Governments. Being bulk commodities similar to liquor or petroproducts and handled largely by parastatals also makes them easy to tax, though at the expense of both the producers (farmers, refineries) and the consumers.

FCI and State agencies procured nearly 10 million tonnes of wheat from just Punjab during the 2002-03 rabi marketing season. At an MSP of Rs 620 per quintal, the various levies (adding up to 9 per cent excluding the 2.5 per cent arhtia commission) would have translated into revenues of almost Rs 560 crore for the State Government.

If one adds to this, the money on account of rice-paddy purchases, Punjab alone would be earning over Rs 1,000 crore annually from the procurement operations for the Central pool.

If the levies were to be slashed to 4 per cent, the Punjab Government would lose roughly Rs 500 crore. The revenue losses for Haryana and AP are similarly assessed at Rs 350 crore each.

The Centre has justified the fixation of the four per cent ceiling on local taxes and levies largely to curtail its own food subsidy outgo as well to contain their cascading and, hence, market-distorting impact. The additional impact of the various levies (11.5 per cent) on just wheat, taking the MSP of Rs 620 per quintal announced for 2002-03, comes to over Rs 71 per quintal.

State Government, on their part, have opposed the move to impose a cap on local levies, while even arguing that it impinges on their constitutional right to impose taxes on farm produce.

``Taxing primary agricultural products is a right conferred to State Governments by the Constitution. How can the Centre unilaterally decide that the FCI is not obliged to pay levies beyond four per cent?'' a Punjab Government official pointed out.

Food Ministry sources, however, say the Centre has by no means unilaterally effected a reduction in State levies on foodgrains. ``It is for the States to decide whether to raise or slash taxes on foodgrains. All that we have done is to instruct the FCI to procure foodgrains at a gross price that is equal to the MSP plus four per cent. If State Governments want to retain taxes at 10.5 per cent, they may do so by deducting the remaining 6.5 per cent from the price to be paid to farmers'', they added.

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