Budget must review service tax, VAT and GST: Sanjay Kaul
February, 14th 2013
The fertiliser and pesticides sector has hogged attention alright, but experts agree it is the agriculture sectorthat needs to grow at beyond 3% to help the country clock a gross domestic product (GDP) of 8-9%. Unfortunately,it is one sector that has never been viewed as a vehicle of growth, says Sanjay Kaul, MD and CEO of National Collateral Management Services Ltd (NCMSL), a risk management firm specialising in agri-produce and inventory handling. But, all has not been lost yet, he tells RN Bhaskar and Promit Mukherjee. Excerpts from the interview:
How can the government use the Budget as a tool to make agriculture a true vehicle of growth? Agriculture will give you growth only if you do some value-addition. If you see, value of $1 of produce in the US will, after value addition, give $10. So, while in the US the value achieved after value-addition is ten times, in India, it’s only 1.1 times. China gives 2-2.5 times value after value-addition. Of the total agro-produce, only 5-6% in India is processed and the rest of it is sold as it is. The problem arises when the government looks at the agriculture sector with a view to increase produce, when there is already 450 million tonne of food grains produced in the country.
And when I say ‘processing’, I don’t mean high-end value-addition, but value-addition like sorting and grading. And distinguishing between good quality wheat and bad quality wheat is something that can give a lot of value-addition. So, what we recommend is that unlike last year, when the food processing sector got only Rs 600 crore in the Budget, recognise agri-business and food processing as something that will give you public value.
What are the places where investments can be made which can help the sector grow faster? You need to incentivise certain activities which lead to improving farmers’ income. This will include investment in research for better seeds, investment in promoting agriculture marketing, agriculture extension. In last year’s Budget, such services were levied 10-12% service tax. So, we are saying a broader policy is required which can look at exempting all agri-based services from service tax. Also, try promoting local companies which are into farm equipment manufacturing, or if there is no local manufacturing available, then the customs duty should be zero.
What specifically can be done for farmers apart from providing access to better seeds and fertilisers? Risk reduction of farmers — this is another area which requires a lot of thrust. One major risk that the farmer faces is of weather risk which he can’t predict at all and sometimes whole of his crop is wasted. We are basically trying to work with insurance companies to promote weather insurance products. The basic element of prediction is weather station and in India currently there is a 27% duty on weather insurance components.
Do you have any suggestions regarding warehousing facilities offered for agri produce? There is one recommendation we have about warehousing, and that is the way VAT (value-added tax) or GST (goods and services tax) is operated. As soon as the title transfers, there is VAT. There is no value-addition that has taken place but there is already a value-added tax! So, do away with these multiple layers of taxation as long as the activity is in the warehouse. This will also encourage warehousing.
What is your view on taxation of agriculture produce? We support GST which will make the taxation mechanism very uniform across the country. In Europe, there is a uniform tax across 15-16 countries and in India the moment some produce leaves a state, it is taxed. Then, when it enters a state, it is taxed again. This is something that should be replaced completely by a uniformGST. This will also help in easy movement of agriculture produce across the country.