MP irked at being told to cut VAT on opium

The issue on value-added tax has come to haunt MP again.

On the one hand, opium farmers are expecting higher returns if a higher level of VAT continues, and on the other, the state government is irked at the letter sent by the Union finance ministry, advising it to bring down the value-added tax rate on the commodity from 46 per cent to 4 per cent.

"We'd lose revenue heavily. The Union government has told us if we do not cut the value-added tax rate on opium, it will be brought under 'declared goods'. We are going to take up the matter at higher levels," a highly placed government source told Business Standard, asking, "should opium be considered as cereals, coal or cotton." The state earns Rs 19 crore revenue, approximately, from sales tax on opium.

Article 286 (3) (a) of the Constitution authorises Parliament to declare some goods to be of "special importance" and impose restrictions and conditions on the powers of states to levy taxes.

Parliament can restrict the powers of state governments to tax such "declared goods". Section 2 (c) of the Central Sales Tax (CST) Act defines "declared goods" as those declared under Section 14 of the CST Act as "goods of special importance in inter-state trade or commerce". States can levy only 4 per cent tax on goods of special importance.

Madhya Pradesh has its leading opium-growing belts in its western part including Mandsaur, Sitamau, Suwasara, Malhargarh, Garoth, Bhanpura, Neemuch, Jawad, Manasa, Ratlam, Sailana, Jaora, Alot Piploda, Mahidpur, Khachrod, Nagda, Petlawad, Barod, Susner and Jeerapur.

The number of growers has also been reduced this year. The Central Narcotics Bureau has not raised the limit of area of opium per farmer.

"Now farmers can grow only on 10 ares (1,000 square metres) against 20 ares per farmer three years ago, despite good rains. The tax cut will benefit farmers since the central government is expected to raise opium prices," opium grower Yashpal Sisodia told Bsuiness Standard on the phone from Mandsaur. A farmer fetches approximately Rs 2,000 per kg on opium sale.

Central Narcotics Bureau officials were not available for comment. However, a source in the Bureau told Business Standard, "34,153 farmers have been issued licences this year, against 36,352 farmers in the state. The minimum qualifying yield is 56 kg per hectare. Opium had cultivated on 3,636 hectares, which has been reduced to 3,416 hectares this year."

Poppy cultivation is prohibited under the Narcotic Drugs and Psychotropic Substances Act, 1985, except under a licence issued by the Central Bureau of Narcotics.

At present, the legal opium poppy cultivation, which started after the decline of the Mughals, is permitted by the Centre in select tracts.