The Hindu : Business : Tea prices may rise after VAT

Online edition of India's National Newspaper
Wednesday, Feb 09, 2005

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Business

Tea prices may rise after VAT

By Our Special Correspondent

NEW DELHI, FEB. 8. The tea industry has warned that prices of the cup that cheers will rise in case states opt for the 12.5 per cent category of the value added tax (VAT) for this commodity. "It is hard to imagine an Indian household where tea is not a staple item on the kitchen shelf and the move on the part of a State government to include tea in the 12.5 per cent VAT category would have a detrimental effect for the common man," the industry says.

In a statement issued here today, the Tea Packeters Association of India has noted that the empowered committee of state finance ministers on VAT has declared that states have the option to classify tea in the 4 per cent or 12.5 per cent category. However, it points out that if a state government decided to include tea in the 12.5 per cent classification, it would lead to rise in prices of the commodity. It also says reports suggest that prices of other commodities would come down after the implementation of VAT, but prices of tea, "a key component of monthly household budgets" would actually go up if placed in the 12.5 per cent category.

The association says tea is an essential item of mass consumption and the cheapest drink next to water. It cautions that VAT on tea at 12.5 per cent at multiple points plus the impact of wholesale and retail trade margins will lead to a final incidence of nearly 16 per cent rise for the consumer. It goes on to add that since tea is an agricultural produce, the move will also have a detrimental effect on the livelihood of millions employed in the agricultural sector. Besides, it maintains that placing tea in a 12.5 per cent VAT category may actually result in a fall in revenue collections. While deficit in revenues will be made up for by State governments, a rise in taxation leading to higher tea prices would create a decline in consumption, it is argued.

The association cites various consumer groups in support of its plea for putting tea in the four per cent category including a note by the Consumer Education and Research Centre (CERC) which has expressed surprise over the wisdom of placing in the 12.5 per cent category.

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