With the rollout of the goods and services tax (GST) from July 1, the Food Corporation of India (FCI) would save around Rs6,600 crore annually on its tax bill. This is because the corporation which annually procures around 50-55 million tonne (MT) of rice and wheat from farmers in key grain growing states won’t have to pay 5% value added tax (VAT) on Minimum Support Price (MSP) along with few other state-level levies such as rural development cess. Sources told FE that in principle all the ‘fees, charges and commissions’ currently being levied by state governments on grain procurement would not be subsumed following roll out of GST. “Besides VAT, any cess imposed by state governments on grain purchase would be subsumed after roll out of GST,” an official said. It implies that key grain surplus states like Punjab, Haryana and Andhra Pradesh would continue to impose mandi or market fee (2%), arthia or commission agent commission (2%) and other charges or fees on the grain purchases from the farmers in the mandis. In 2016-17, FCI had paid around Rs 5000 crore to states as VAT for grain purchased from farmers. At present, statutory levies like VAT, mandi tax and arthia (agent commission) paid by the corporation to state governments on an average account for 13% of the MSP 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.
Overall, FCI had been paying annually more than Rs10,000 crore as taxes on the MSP to key grain surplus states, mainly Punjab, Haryana, Rajasthan, Andhra Pradesh, Telangana, Madhya Pradesh, Chhattisgarh and Odisha. Experts say following the roll out of GST, 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. “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. The FCI incurs a subsidy of Rs21.09 per kg for wheat and Rs29.64 per kg for rice, which is reflected in the annual food subsidy budget. FCI procures grains for distrbution under National Food Security Act and keeping buffer stocks. FCI’s food subsidy budget for the current year is Rs1.07 lakh crore.