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Traders want removal of VAT from poor man's food
Thursday, 10 April 2003, 19:30 IST
NEW DELHI: Indian traders and producers are irate over the government's decision to impose single-point value added tax (VAT), saying it will squeeze either them or poor consumers.
Salt and tea, for instance, are two of the most common household items in India that will come under a VAT of four percent and 12.5 percent respectively from June 1.
"Everyone from the producer to the consumer will be affected," says Inder Singhee, president of the Tea Packeteers' Association of India.
The billing price of tea is around 
120 per kg, to which the sales tax of eight percent is added. The current maximum retail price (MRP) is around 160 per kg.
"Once a VAT of 12.5 percent is charged, the MRP would increase to 168 to 178 per kg," Singhee says. This arises, as producers, wholesalers and retailers would have to pay, say a sum of approximately six to 10 rupees for every 20 rupees profit they make.
VAT could force packeteers to reduce the volume of tea to cope with the billing price charged on them by producers, according to Singhee.
"Another way to maintain the MRP is to reduce the billing price, which would prove costly for producers," he says. Reduction in billing price, however, could force several plantation owners to close down.
A fact-finding team, commissioned by the Centre for Education and Communication (CEC), visited tea plantations in Kerala, Tamil Nadu and West Bengal to assess their problems.
According to their report, there are several instances of starvation deaths and suicides by tea plantation workers.
Twenty to 25 plantations have been closed down because of various economic problems in the past year. "An average of 1,000 workers work on these plantations. So one can imagine what VAT can do to employment," Singhee says.
The tea industry says saying almost every other kitchen item is taxed only up to four percent.
The other sector that is severely critical of the government plan is the salt industry.
Interestingly, history suggests the last time a tax of any form was imposed on salt was during the British Raj. Mahatma Gandhi had protested the move through the historical Dandi march.
"It is surprising that the VAT system proposes to place processed salt in a four percent tax category, levying a tax on one of the most essential commodities in India," says Samir Agarwal, deputy general marketing of the Mumbai-based Gujarat Heavy Chemical Limited.
His company is part of the Indian Salt Manufacturers Association (ISMA), which is also baffled by the move to place processed salt in a four percent VAT segment while exempting unprocessed salt.
"Not only would this be a hindrance to furthering the consumption of pure salt, it also goes against the grain of what the iodisation programmes in India have set out to achieve," Agarwal points out.
M.G. Karmakar of the International Council for the Control of Iodine Deficiency, New Delhi, however, doesn't agree.
"Even unprocessed salt contains iodine and 80 percent of Indians consume unprocessed salt anyway," Karmarkar counters.
But, counters Agarwal, taxing small-time salt producers and traders would still be unfair. "Salt producers manage to produce only about 2,000 tonnes every year, with prices being as low as 70 per tonne," he says.
Costs will have to be increased, as retailers will be forced to relent with these wholesale traders, according to Agarwal.
Edible salt forms around 5.5 million tonne of the annual 14.5 million tonne of salt produced in India. Only 30 percent of the total edible salt market of around 6 billion is held by the organised sector.
Tax expert T.G. Keswani, member of the PHD Chamber of Commerce and Industry says the industries are left with only two options.
"Either they will have to increase the MRP, which will affect consumers." Or they will have to absorb the increase in the costs of production and still maintain the same MRP.
"This will decrease their margin for profit," Keswani said.
Source: IANS
120 per kg, to which the sales tax of eight percent is added. The current maximum retail price (MRP) is around 160 per kg.
"Once a VAT of 12.5 percent is charged, the MRP would increase to 168 to 178 per kg," Singhee says. This arises, as producers, wholesalers and retailers would have to pay, say a sum of approximately six to 10 rupees for every 20 rupees profit they make.
VAT could force packeteers to reduce the volume of tea to cope with the billing price charged on them by producers, according to Singhee.
"Another way to maintain the MRP is to reduce the billing price, which would prove costly for producers," he says. Reduction in billing price, however, could force several plantation owners to close down.
A fact-finding team, commissioned by the Centre for Education and Communication (CEC), visited tea plantations in Kerala, Tamil Nadu and West Bengal to assess their problems.
According to their report, there are several instances of starvation deaths and suicides by tea plantation workers.
Twenty to 25 plantations have been closed down because of various economic problems in the past year. "An average of 1,000 workers work on these plantations. So one can imagine what VAT can do to employment," Singhee says.
The tea industry says saying almost every other kitchen item is taxed only up to four percent.
The other sector that is severely critical of the government plan is the salt industry.
Interestingly, history suggests the last time a tax of any form was imposed on salt was during the British Raj. Mahatma Gandhi had protested the move through the historical Dandi march.
"It is surprising that the VAT system proposes to place processed salt in a four percent tax category, levying a tax on one of the most essential commodities in India," says Samir Agarwal, deputy general marketing of the Mumbai-based Gujarat Heavy Chemical Limited.
His company is part of the Indian Salt Manufacturers Association (ISMA), which is also baffled by the move to place processed salt in a four percent VAT segment while exempting unprocessed salt.
"Not only would this be a hindrance to furthering the consumption of pure salt, it also goes against the grain of what the iodisation programmes in India have set out to achieve," Agarwal points out.
M.G. Karmakar of the International Council for the Control of Iodine Deficiency, New Delhi, however, doesn't agree.
"Even unprocessed salt contains iodine and 80 percent of Indians consume unprocessed salt anyway," Karmarkar counters.
But, counters Agarwal, taxing small-time salt producers and traders would still be unfair. "Salt producers manage to produce only about 2,000 tonnes every year, with prices being as low as 70 per tonne," he says.
Costs will have to be increased, as retailers will be forced to relent with these wholesale traders, according to Agarwal.
Edible salt forms around 5.5 million tonne of the annual 14.5 million tonne of salt produced in India. Only 30 percent of the total edible salt market of around 6 billion is held by the organised sector.
Tax expert T.G. Keswani, member of the PHD Chamber of Commerce and Industry says the industries are left with only two options.
"Either they will have to increase the MRP, which will affect consumers." Or they will have to absorb the increase in the costs of production and still maintain the same MRP.
"This will decrease their margin for profit," Keswani said.
Source: IANS