Agriculture infrastructure cess: States#39; tax revenue to take a hit as FM cuts duty


State revenues are likely to take a hit due to the restructuring of taxes announced by Finance Minister Nirmala Sitharaman in the Union Budget 2021. Amid the ongoing farmers’ agitation, Sitharaman introduced an agri infra and development cess of up to 100 percent to finance agricultural infrastructure and other development expenditure.

The finance minister said that there was an immediate need to improve agricultural infrastructure to “produce more, while also conserving and processing agricultural output efficiently”.

“This will ensure enhanced remuneration for our farmers,” she said.

Read: FM Sitharaman announces agricultural infrastructure and development cess

“To earmark resources for this purpose, I propose an Agriculture Infrastructure and Development Cess (AIDC) on a small number of items. However, while applying this cess, we have taken care not to put additional burden on consumers on most items,” she said, adding that higher cess is adjusted with lower customs duty.

While the cess will not raise the cost of products for consumers as the impact has been offset by an equivalent or more reduction in the import duty, the rearrangement will mean that states will receive less money due to the duty reduction.

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The central excise and customs duties are divided between the Centre and the states, while cesses imposed by the centre go to the central coffers and states receive no part of the amount collected via cess.

The Finance Ministry is yet to divulge the amount of revenue states will loose due to the reduction in import duty. However, Finance Secretary Ajay Bhushan Pandey said, “We have imposed agri cess on about 14-15 items. The total amount that we estimate (to get) is Rs 30,000 crore.”

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AIDC, which will come into effect on February 2, has been placed on fuel, alcoholic beverages, gold, silver, crude soybean, and a few other commodities.

To accommodate the new cess of Rs 2.5 a litre on petroleum, the Centre has cut the basic excise duty on petrol from Rs 2.98 to Rs 1.4. To accommodate a similar AIDC of Rs 4 on diesel, the basic excise has been cut from Rs 4.83 to Rs 1.8 a litre.

Read: Here is how Budget 2021 will impact your personal finances

A similar adjustment has been made for alcohol that currently attracts 150 percent basic customs duty. That basic import duty has now been cut to 50 percent to negate the impact of 100 percent cess.

While consumers will pay the same or lower price for the commodities, states will lose out on their share of customs revenues.

Read: Customs duty hike to make ACs, mobile phones, spandex expensive but gold, silver, nylon get cheaper

Here is the percentage of AICD placed on other commodities:

2.5 percent on gold, silver and dore bars
100 percent on alcoholic beverages
17.5 percent on crude palm oil
20 percent on crude soybean and sunflower oil
35 percent on apples
1.5 percent on coal, lignite and peat
5 percent on specified fertilisers (urea, etc)
40 percent on peas
30 percent on Kabuli chana
50 percent on Bengal Gram/ChickPeas
20 percent on Lentil (Mosur)

5 percent on Cotton (Not Carded Or Combed)

Follow Moneycontrol’s Budget 2021 coverage here.