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Rich pickings in store for tea firms

Calcutta, Feb. 28: The tea industry today welcomed finance minister Jaswant Singh’s move to abolish the excise duty of Re 1 per kg and replace it with a cess of Re 1 per kg to be used in the development of tea plantations.

While admitting that the plantation sector was passing through a rough patch, the finance minister said a separate fund will be created for the cess which will be used for development, modernisation and rehabilitation of tea plantations.

Moreover, with a view to providing stability in terms of income for small growers, the government has announced a price stabilisation fund of Rs 500 crore from 2003-04 onwards for the benefit of tea, coffee and natural rubber growers. The fund will become operational in 2003-04.

Williamson Magor chairman B. M. Khaitan reacted to the measures outlined in the budget with guarded optimism. “Even though the Union Budget has failed to meet the expectations of the tea industry it has brought some good news. The funds will be deployed for development of the tea plantations to produce better quality teas.”

The tea industry had argued strongly in favour of withdrawing the excise duty on tea (at the rate of Re 1 per kg), which, it argued, has added to the burgeoning costs borne by the industry and eroded profitability.

The industry had pointed out on several occasions that tea was exempt from such taxes in all south and southeast Asian countries. Besides, the industry also said the excise levy on tea should be withdrawn as the Central government has already brought some food items out of the purview of such a tax.

C. K. Dhanuka, chairman of Dhunseri Industries welcomed the move and said that modernisation of the Indian tea industry was the need of the hour if it has to survive in the competition, especially the threat posed by Sri Lankan and Kenyan tea.

With the abolition of the excise duty, retail prices of tea are expected to come down.

The tea sector had also sought some income tax concessions too. At present, apart from state agricultural tax, income tax at the rate of 40 per cent is levied on tea companies. The industry had sought an increase in allowances under Section 33AB of the Income Tax Act so that additional resources could be made available to tea companies for uprooting or re-planting unviable and uneconomical plantations. But the Union Budget remained silent on this issue.

On deduction under Section 80 HHC of the Income Tax Act with respect to export profit, the industry said the present level of deduction at 40 per cent “grossly discriminates” against the tea companies and they are liable to pay higher tax than companies in other sectors. The sector had proposed that full deduction should be allowed in exports out of auction sales.

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