Saturday, April 21, 2018

Tax Benefit to Farmer Producer Companies

Providing interest-free loans and tax holidays is a subsidy. In fact, the corporates thrives on such subsidies. Corporations use most of the loopholes and tax dodges to avoid their taxes that may be technically ‘legal’ in the sense as the tax law allows them. But those subsidies got into the tax code because corporations lobbied to put them there. Saying something is ‘legal’ doesn't mean that it’s ethical.

The difference being, these subsidies are called ‘incentives for growth’. But, strangely, it is always subsidies for the poor/farmers that come under the scanner. Even big individual agriculturists are not taxable in this country, whereas when they collectivize themselves, they were being taxed. Institutions promoting FPOs and Union agriculture ministry were seeking income-tax exemption for FPOs from a long time.

Union Budget has proposed that FPCs, registered under the Companies Act, having an annual turnover up to INR 100 crore need not pay tax on profits derived from farm-related activities. There was deduction of income under section 80P of Income tax Act of producer companies registered under Par IX A of the companies Act. This is a welcome step but many hindrance still remains. For those interested, a detailed note on need of tax benefit to FPO by Dr Irina Garg, Director General of NIAM was shared with Ministry of Agriculture and Farmers Welfare and Ministry of Finance.

To the Registrar of Companies, the FPO is just another form of a company. Therefore, the cost and burden or reporting is disproportionately huge, as the rules are the same as what would apply to a corporate. Any reporting shortfalls or violations attract huge fines from RoCs. Institutions that championed the cause of FPOs have been vocal about the need for a lighter regulatory & reporting regime for FPOs. Thus far, this issue has not received attention. Unless that is done, the risks that farmer directors face are serious.

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