Ginners in Punjab had then admitted lower market fees in Punjab (two per cent) was likely to benefit the ginners in Punjab as they were anticipating shifting of cotton bales being shifted from neighbouring Haryana to Punjab.

However, later Haryana government reduced the market fees from 4 per cent to 1.6 per cent. This now has left the Punjab ginners fuming as market fees in Punjab now is higher in comparison to Haryana. While market fees on cotton in Punjab stands at two per cent it is 1.6 per cent in Haryana. The advantage once again has shifted to Haryana, claims ginners in Punjab.

Bhagwan Bansal, president of Punjab cotton factories and ginners association believes it is not just the high market fees on cotton that was hurting the ginners but, also the discriminatory VAT practice. Haryana cotton factories enjoy facilities of a VAT refund of 2.4 per cent against the interstate transaction, which is not there in the Punjab VAT Act, Bansal said.

“As no VAT refund is available in Punjab, spinning units prefer purchasing cotton from states like Haryana and Rajasthan,” said Bansal.

The tax difference i.e., market fees and CST combines between Punjab and Haryana now stands at 2.8 per cent which suggest farmers in Haryana get Rs 125 more per quintal on narma variety of cotton compared to Punjab. This is resulting in farmers shifting their produce from Punjab market to Haryana markets, which is not only impacting the ginners but, also impacting the revenue collection in Punjab.

“The remedy for this situation lies in amendment of Punjab VAT Act and also having level playing field. Instead of state competing against each other on market fees, uniform market fees should be applicable across all cotton growing states in India, Bansal said.

Source: Business Standard, India,  dated 31/12/2011