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GoM for no sugar cess, GST cut on ethanol; 1% farm impost likely on luxury items
Jul 12, 2018

A group of state finance ministers (GoM) on Wednesday decided against imposing a tax-system-distorting ‘sugar cess’ to raise resources for supporting cane farmers. Instead, the panel favoured a cut in the GST on ethanol from 18% to 12% and exploring the legality of a 1% ‘agriculture cess’ on luxury items as alternative ways for lending a helping hand to cane growers and the sugar industry.
The food ministry had earlier mooted a cess of up to Rs 3/kg on supply of sugar over and above 5% GST on the sweetener. The cess proceeds, seen at Rs 6,700 crore, were to flow into a dedicated fund and to be used to finance any gap between the cane price mills can pay to farmers in accordance with the Rangarajan panel formula and the benchmark rate fixed by the Centre.
At the subsequent GST Council meeting in May, however, divergent views emerged on the proposal, as many state finance ministers felt that such an impost would mark a departure from a recent policy consensus against cesses that are incompatible with a modern system of indirect taxes, free from tax cascades. The GoM, headed by Assam finance minister Himanta Biswa Sarma, was therefore set up to iron out the differences.
To soften the blow to sugar mills, the Centre last month approved a package, comprising Rs 4,440-crore loans to mills to expand ethanol production capacity and Rs 2,507-crore aid in the form of interest subsidy on the loan and carrying cost of creating a buffer stock. Sarma said arrears due to cane farmers had come down to Rs 18,000 crore from Rs 23,000 crore. Considering this positive development, we do not think there is a case for levying cess on sugar at the moment.

Financial Express