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Farm sector for competitive taxation

THE FARM sector, which contributes 60 to 65 per cent to the State's Gross Domestic Production (GDP), is looking forward to some special incentives in the coming budget.

india Updated: Feb 19, 2006 15:59 IST

THE FARM sector, which contributes 60 to 65 per cent to the State's Gross Domestic Production (GDP), is looking forward to some special incentives in the coming budget.

The predominantly agricultural State has topped in production of pulses, oilseeds, soybean and gram in the country and has been third in food-grains. Thus, significance of this sector in the economic growth of the State cannot be over-emphasised. MP, according to government statistics, has achieved a growth rate of 4.5 per cent.

Farmers and traders dealing with farm produce and implements are demanding that Mandi Tax and development cess are reduced to one per cent.

The PHD Chamber of Commerce & Industry (PHDCCI) has suggested in its pre-budget memorandum to the State Government that the proceeds should be utilised for modernising Mandis, on-line trading facility and setting up of silos and warehouses across the State.

Referring to the Industrial Promotion Policy that aims to boost industries only in food parks, the Chamber has suggested emphasis on value-addition and promotion of food processing industries.

“Benefits of exemption of Mandi Tax and Commercial Tax should be made available to all food processing industries in MP irrespective of location,” says resident director, PHDCCI, Rajendra Kothari.

With an irrigated area of 56.68 lakh hectares and a provision of Rs 1735 crore made in the present budget for irrigation, both traders and farmers strongly feel that the sales tax on tractor and tractor parts manufactured in the State should be at par with states like Punjab and Haryana.

Although the manufacturing units located in MP will get exemption from payment of sales tax till August 2007, the vendors of such plants are not exempted from sales tax in case raw materials are bought from registered dealers in the State.

The effective rate of tax at 4.6 per cent is being paid at every stage of procurement. The total tax works out at 9.66 per cent in case of a value chain. “The cascading impact as seen in MP doesn't exist in Punjab and Haryana, and ultimately farmers get tractors in a comparatively cheaper rate there than in MP,” a vendor pointed out.

Taxation on Agricultural pumping sets is another area of concern for farmers in MP. Pump sets of 3 HP attract 4.6 per cent tax in MP, whereas it's nil in Rajasthan, Punjab and Haryana and 4 per cent in Gujarat.

Similar, tax differences exist in pump sets above 3 HP and 10 HP. The other implements include threshers, gensets etc. soybean being the most important crop with 60 per cent of country's soya processing units based in MP, this segment of the farm sector needs a special focus when it comes to taxation.

The Soybean Processors Association of India (SOPA) has advocated reduction of Mandi Tax on soybean from 2.2 per cent to 1 per cent at par with other states.

“In view of the implementation of the first point tax at the rate of 1.5 per cent on soybean seed in the last budget, the tax on soybean De-oil Cake (DOC) should totally be exempted like in soybean oil,” demands chairman, SOPA, Rajesh Agarwal.

MP is one of the three leading states of soybean growers accounting to 96 per cent production. The two states -- Maharashtra and Rajasthan -- have already exempted DOC from the purview of commercial tax.

The SOPA has urged government to consider input costs on export of soybean meal, which accounts to 85 per cent of the total oil meal export.

“The commercial tax on high protein value added products like soy flour, soy lecithin and soy nuggets are presently been classified under 12.5 per cent category in the proposed VAT Act, which, in fact, should be classified as essential commodity under nil tax rate,” adds Agarwal.