Tea frets over GST burden - ITA

Dated 10th April, 2016

The Indian Tea Association (ITA) has said the introduction of the goods and services tax (GST) would increase the burden on the industry.

"Any GST rate or additional tax incidence higher than the current value added tax (VAT) rate of 5-6 per cent may work negatively for the tea industry. Moreover, an increase in tax cost will have an inflationary effect," said Arijit Raha, secretary-general of the ITA.

A committee headed by chief economic adviser Arvind Subramanian has proposed a three-tier GST structure with a lower rate of 12 per cent, a standard rate in the range of 16.9-18.9 per cent and a higher rate for luxury goods of 40 per cent.

However, even at the concessional rate of 12 per cent, the tax cost on tea is expected to increase. At present, tea is also exempt from excise duty.

Tea is considered to be the country's most widely-consumed beverage. The industry is highly labour-intensive, which employs over 1.1 million people. Moreover, job security is dependent on the industry's viability to cope with increased cost, productivity issues and competitive export scenario.

In 2015, total production declined 1.34 per cent to 1,191.10 million kg from 1,207.31 million kg a year ago, Tea Board data said.

"As it is the industry has been suffering for quite sometime, especially the Dooars in Bengal and Cachar in Assam with a declining rate of production. Addition of taxes will only add to the woes of the producers as it will lead to a higher working capital cost," Raha said.

In 2015, production in the Dooars and Terai was down about 2 per cent to 314.66 million kg from 320.95 million kg in 2014. In 2015, Cachar produced 45.70 million kg compared with 49.41 million kg a year ago, down 7.5 per cent.

At present, tea sold through auctions in Assam and Bengal is subject to a VAT of 0.5-1 per cent.

Under the proposed GST structure, the states may not have the flexibility to fix a different rate for auction, making it less attractive.

"GST is very tricky as it is a combination of various taxes. If GST comes in, the entire auction system will have to be revamped," Kalyan Sundaram, secretary of the Calcutta Tea Traders Association, told.