Our Bureau

Coimbatore , Dec. 5

EVEN while welcoming the proposed tax regularisation system - VAT (Value Added Tax), the entire trade community comprising tea producers, buyers and traders have come together in requesting the Empowered Committee of State Finance Ministers on VAT to reconsider the proposed revenue neutral rate (RNR) of 12.5 per cent for tea under the VAT system and bring it under the 4 per cent taxation slab, when the VAT regime is in place.

Stakeholders are of the opinion that the 12.5 per cent levy could lead to unhealthy trade practice. In a press statement issued jointly by the Federation of All-India Tea Traders Associations (FAITTA), the UPASI, the Planters' Association of Tamil Nadu (PAT), the Nilgiri Small Tea Growers' Association, the Nilgiri Bought Leaf Tea Manufacturers Association, Tea Trade associations of Kochi, Coimbatore and Coonoor, the Tea Buyers' Association, Tantea and Tea Board have expressed concern over the classification issue and have appealed to the committee to save the industry from the adverse impact of the increase on both millions of consumers and over one lakh growers and plantation workers.

(The much awaited tax regularisation system VAT envisages a tax levy at every step of the product's journey - from the supplier to consumer. It has been designed to levy taxes on various product categories in four segments. Slab I includes essential products such as petrol, milk, and vegetables, where no VAT would be applicable. Semi essential products such as bread, edible oil and salt would fall in Slab II, where the levy would be at 4 per cent. Non-essential product categories such as like liquor fall into a demerit category, where the States would have the flexibility to apply a VAT rate and all other products under the RNR category, where VAT would be 12.5 per cent).

While VAT promises to revolutionise tax structures, its introduction, industry sources apprehend could have an adverse effect on tea and coffee prices as the end-consumer price levels would register a significant rise. "This would have a detrimental effect on the common man's affordability," Mr Hemant Shah, President, FAITTA (TN), said.

Currently, the sales tax rate (in most States) hovers around 8 per cent. Placement of tea and coffee in the 12.5 per cent category and the structure of VAT, they say, would influence the tax component, pushing it to upwards of 15 per cent. A significant part of this enhanced tax payout would be on account of taxation of trade margins, industry insiders explained.

They further pointed out that some items of niche interest such as cashews were classified under the four per cent slab rate, while tea was not.

The source alleged that the States were more concerned about the loss of revenue by classifying tea and coffee in the lower VAT slab and explained that the effective collection and enhanced consumption (by placing this poor man's beverage in a lower VAT slab) would more than make up for the envisaged loss.

"Enhanced taxation on the other hand could lead to decline in consumption pattern because of rising rates. This backlash could be severe," Mr Ullas Menon, Secretary General, UPASI, said.

"The challenges faced by the tea and coffee industry on VAT are compounded by the fact that the industries cannot draw any advantage from the input credit system, which is a critical component for successful implementation of VAT. Credit from input taxes can only be offset in the States where the products are manufactured. While the production of tea and coffee is confined to few States, the consumption is global," Mr Menon explained

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