Mandi Tax can stay, says Law Ministry

Shishir Sinha/TV Jayan The Union Law Ministry has said that States can continue to levy Mandi Tax despite the introduction of the Goods and Services Tax (GST).

GST subsumes 17 types of indirect taxes and 23 types of cesses levied by the Centre and the States, but not the Mandi Tax. The Law Ministry was responding to a recent query from the Union Finance Ministry.

Entry 66 of the State List under the Seventh Schedule of the Constitution says: “Fees in respect of any of the matters in this List, but not including fees taken in any court.”

This forms the basis of levying Mandi Tax, as trading, whether wholesale and retail, is a State subject. “As Entry 66 has not been struck down by the 101st amendment of the Constitution, and also Mandi Tax has not been subsumed like other State cesses under the State Goods and Services (SGST) Act, the Law Ministry believes States can continue to levy such a tax,” a senior government official told BusinessLine on Thursday.

He, however, explained that once the States make an amendment to the SGST, it will be possible to abolish Mandi Tax.

Mandi Tax is technically not a tax but a fee on the sale and purchase of agriculture produce. Since the States, invoking their powers under the Constitution, use it, it is better known as Mandi Tax. It is levied to defray the costs of running an agricultural wholesale market where farmers get good prices from buyers.

“While in an ideal world, there should not be any State-specific tax and all taxes should be common across the country, this is difficult to achieve considering the diversity of the States,” said MS Mani, Senior Director with Deloitte India.

Complicating it further is the fact that Mandi Tax rates vary from State to State and also from one foodgrain to another. For example, Punjab levies Mandi Tax at 6 per cent in the case of rice while it is 1 per cent in Delhi. Similarly, the rate on wheat varies from 1 to 4 per cent while on pulses it is 0.6 per cent to 2.5 per cent.

Such a tax hurts not just trade and business but also farmers. “There is a need to rationalise market fees into a uniform rate, which is reasonable and just. In the absence of that, a good part of sales goes underground, adversely affecting farmers mainly,” said Vijay Setia, President of the All India Rice Exporters Association (AIREA).

Having a uniform market fee will have several benefits, he said. Giving an example, he said: “Currently, a large number of Haryana and Punjab farmers prefer to bring grains to mandis in Delhi because they get better prices in the mandis in the capital: the market fees levied there are a lowly 1 per cent.”

“If the rates are uniform across the country, farmers do not have to haul the produce long distance but can sell them in local mandis, and thus it would help ease vehicular traffic on highways and reduce associated pollution,” he said.

He added that a uniform market fee of 2 per cent would be ideal, as it could raise sufficient funds to develop mandi infrastructure.

Now, the big question is why this cess was not — and now cannot be — subsumed in GST. The general belief is that the institution which collects Mandi Tax, the Agriculture Produce Marketing Committee (APMC), is very powerful politically across party lines.

Second, as Mani said, all States did not agree to subsume it in GST. “Since it is applied only on certain agricultural commodities and is levied at a different rate by various States, it was possibly felt that its inclusion would be complicated in the initial stages of GST,” he said while advocating that since GST is settling down now, “it is time to deliberate on its inclusion.”