1% CESS ON DIRECT TAXES & 2% ON INDIRECT TAXES PROPOSED
TO PART-finance the biggest debt relief package for farmers, amounting to a staggering Rs 60,000 crore, the government is examining a proposal of introducing a cess on direct and indirect tax collections. The agriculture ministry has proposed imposition of a 1% cess on direct taxes and 2% on indirect taxes. This is expected to yield Rs 8,500 crore per annum. The cess is one of the ways of financing the farmers’ package. It is being examined by finance minister P Chidambaram.
However, the government is caught between the pressure of an impending election and that of catering to debt-ridden farmers. Sources say the government may not be able to introduce a cess in an election year. “The chances are remote,” a source close to the development said.
The proposal should be within the Fiscal Responsibility and Budgetary Management (FRBM) framework. The government could also resort to off-balance sheet accounting and issue bonds instead. It is yet to finalise the modalities of the package.
However, critics feel the cess collections will be a minuscule compared to the requirements of the sector. Gross bank credit to agriculture and allied activities was Rs 2,30,000 crore in March 2007.
The government is planning to create a separate subhead for debt relief for farmers in its Expenditure Budget to account for the Rs 60,000-crore loan waiver package. The package consists of Rs 30,000 crore in NPA writeoffs for 31 debt-prone districts. The Centre also plans to rope in state governments to share 20% of the burden. Banks and farmers will also be a part of the one-time settlement.
The package, expected to be one of the big-ticket announcements in the Budget, will include waiver of overdues from the small and marginal farmers estimated at Rs 25,000 crore. It is understood that more than half of the farmers come under this category. According to estimates, the total overdue in the case of direct agriculture advances is nearly Rs 90,000 crore. While NPAs account for Rs 30,000 crore, the overdue above one year and less than one year account for as much.
All loanees on or before March 2006 may be eligible for the package. Farmers who are ineligible for new loans because they defaulted on two instalments of interest repayment can now take fresh loans. The MoF is also considering involving farmers in the payback of the dues over a period of five years. “The starting point is the write-off of loans which will make farmers eligible for fresh loans. However, it will not mean putting money in the hands of the farmer,” a source said. The scheme will largely involve writing off the unpaid loans of the small and marginal farmers over four years.