With the rollout of the goods and services tax (GST) from July 1, the Food Corporation of India (FCI) would save around Rs6,600crore 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.
In 2016-17, FCI had paid around Rs5000 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.
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.
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.
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.