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An appropriate tax exemption to seed companies, downward revision of Goods and Services Tax (GST) on organic inputs, crop protection products and agricultural implements and enhanced subsidy on infrastructure created in rural area for farm promotion were among the major pre-Budget tax recommendations proposed by the Confederation of Indian Industry (CII).
In its recommendations submitted to the Finance Ministry, the CII also urged the government to desist from slapping a commodity transaction tax (CTT) on agri-commodities traded on futures market till it attains certain maturity. Introduction of CTT, it said, on processed commodities such as sugar, soya oil, RBD palm oil, cottonseed oilcake and guar gum has already increased transaction cost, leading to a high cost of hedging for value chain participants.
Even though the GST on fertilisers is 5 per cent, major raw materials such as ammonia and naphtha continue to attract 18 per cent, resulting in an inverted rate structure for fertiliser sector. Similarly, crop protection products, which are essential for cutting crop losses, are levied 18 per cent, adding to farmers’ cost and there is an urgent need to bring it down to 5 per cent, CII said.
Organics and branding
Similarly, there is no separate category for organic inputs for both crop nutrition and protection. While there is nil tax on unbranded products, branded organic manure and allied products are levied 12 per cent. Since farmers trust branded products more, they end up buying them and thus incur more expense. Similarly, GST levied on seaweed-based bio-stimulant is 18 per cent, and this has to be brought down to nil.
While income earned from agricultural operations are exempt from corporate tax under Section 10 (1) of the Income Tax Act, 1961, seed companies, whose activities are similar to those undertaken by cultivators, do not enjoy a similar benefit. This is despite the fact that the Directorate General of Income-tax (Research) in the past inferred that 90 per cent of the profit earned by seed companies could be exempt from tax. The trade body suggested setting up of an expert committee to review past studies and recommend an appropriate portion of profits of seed firms that can be considered for exemption as agricultural income.
Farm equipments
Even though prior to the implementation of GST, there was no excise duty on agricultural equipment and the value-added tax (VAT) was around 5-6 per cent. There were States like Tamil Nadu that had completely exempted VAT on farm mechanised products such as paddy combine harvesters. With GST now being 12 per cent, there has been substantial increase in overall cost to the farmer for purchasing the equipment.
The CII said there is need for reducing GST rates on advanced agricultural equipment to 5 per cent from the existing 12 per cent. Similarly, the rate of many valuable parts used in harvesting and threshing machinery are either 18 per cent or 28 per cent. This also needs to be rationalised and brought down to 5 per cent.
Besides, the CII also suggested better sub-classification of tobacco leaves under GST as the current regime results in anomalies, better incentives for cold chain and silos and the more weighted deduction of 150 per cent on expenditure incurred on agricultural extension services.
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