Punjab opposes Centre's composite MSP plan

Citing taxes on foodgrain procurement as the backbone of the state’s economy, the Punjab government has opposed the Centre’s proposal to introduce a composite minimum support price (MSP), inclusive of all state taxes, for procurement of foodgrains for the central pool.

Keeping in view the impact of higher taxes imposed on procurement of foodgrains, the Centre had proposed a composite MSP, including a maximum of five per cent of all state taxes combined, be declared and the state could recover taxes from this composite MSP.

Currently, Punjab imposes 14.5 per cent taxes on the foodgrain procured for the central pool or purchased by private traders. These include five per cent VAT, 2.5 per cent commission paid to commission agents, three per cent infrastructure development cess, two per cent market fee and two per cent rural development cess.

Speaking to Business Standard, senior officials in the finance department stated the Centre’s proposal regarding the introduction of composite MSP does not suit the state. He added any reduction in taxes and levies to five per cent would cause the state to loss Rs 2,000 crore anually. He added further, “The state government has created massive infrastructures like road network and market yards for marketing foodgrain and funds were required to maintain the infrastructure. As we are not getting any assistance from the Centre for the purpose, we are maintaining these through the taxes levied on foodgrains. So we have rejected the proposal.”

Earlier, the Ministry of Consumer Affairs, Food & Public Distribution has sought suggestions from the state governments regarding introduction of composite MSP for procurement.

Currently, the taxes varies from state to state and ranges from 1.5 per cent to 14.5 per cent in case of Rice and 2.5 to 14.5 per cent in case of Wheat. In the past also, attempts were made by the Centre to reduce taxes but didn’t not yielded positive results.

Also, the Commission for Agricultural Costs and Prices(CACP) had, in its recommendations for rabi crops for 2012-13, recommended the fixation of composite MSP at five per cent and compensation to states having taxes higher than five per cent through a separate mechanism to compensate the loss to the states. Further, Farmers were proposed to be paid net MSP after deduction if five per cent.