Prices of food grains, especially wheat and rice, may go up in the proposed Goods and Services Tax (GST) regime. At present, about half the states do not levy Value Added Tax (VAT) on wheat and rice, though they are allowed to tax these food grains at 4 per cent. In GST, these items may be taxed at 12 per cent at the concessional rate or 20 per cent at the standard rate, unless the Union and state governments decide to exempt these. Currently, there is no proposal to exempt these grains from GST.
The Centre is pruning its exemption list to align it with states’ exemption list for VAT, which includes 99 goods. Food grains do not feature in these items. Even if the government decides to tax wheat and rice at the lower rate of 12 per cent, consumers will end up paying more than the current rate. Food grains will become cheaper only if these are exempted from GST.
Apart from VAT, various “statutory charges” are levied on food grains by local governments in the existing regime. While the 4 per cent purchase tax, levied in Haryana, Punjab and Uttar Pradesh, will be subsumed in GST, other charges like rural development fee, market fee (mandi tax), infrastructure development tax and commission to societies and sub-agents may continue in the new regime.
A finance ministry official said there was no proposal to subsume local taxes on foodgrain, except purchase tax, in GST. Since these are not part of the chain, these will be levied along with GST. The official added the Centre and states might have to exempt the grains from GST because taxing them at such higher rates would be detrimental in a country like India.
In the existing set-up, total tax on rice and wheat is highest in Punjab at 13.5 per cent, followed by Andhra Pradesh (12.5 per cent on rice) and Haryana (10.5 per cent). In the GST regime, tax on food grains is Punjab could go up to 21.5 per cent if the 4 per cent VAT/purchase tax is replaced by 12 per cent GST. Other levies add up to 9.5 per cent in the state.
In states like West Bengal, Bihar and Gujarat, the tax is only 3 per cent and it mainly comprises other levies which will not be subsumed in GST. Kerala has exempted rice from tax but charges a market fee of 7 per cent. Impact of taxing food grains in GST will have maximum impact on such zero-VAT states.
