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Customers dragged into VAT crossfire

New Delhi, March 31: The VAT regime, which will kick off from Tuesday, has opened a hornet’s nest with traders preparing to take up arms against the new levy.

“One of the biggest problems is that stockists and retailers do not want to carry inventories for fear of how it will be accounted for under the new system,” president of Tea Packeters Association of India, Inder Singhee, told The Telegraph.

Till now, tax was paid at the first point of sale, where a rate of 8 per cent was charged on the billing price. Now, that rate is likely to go up to 12.5 per cent on the maximum retail price, which will lead to increase in price for the medium-prized tea packets by Rs 6 to Rs 8.

Brands in this category will include Red Label and Taaza from Hindustan Lever and Plantation Pack from Tata Tea — all packets priced between Rs 160-170 per kg.

In the VAT regime, some essential commodities like wheat and other agricultural products have been placed in the zero per cent slab, quasi-essential commodities fall in the range of 4 per cent while luxury goods like liquor and petrol are in the 20 per cent band. However, there is something called a revenue neutral rate, which ranges from 10 to 12.5 per cent.

Singhee said the jump from 8 per cent to 12.5 will be quite steep. The reluctance to hold stocks is unhealthy for the tea industry and reduces the traders’ margins.

HLL, Tata Tea, Godrej, Godfrey Phillips and Girnar are some of the members of the Tea Packeters Association. Several food companies, along with cola majors, are either reluctant to comment on the contentious issue or say there is not enough clarity at this stage to speak out.

However, the druggists and chemists across the country are up in arms against the VAT regime. Recently, the All India Organisation of Chemists and Druggists (AIOCD) held a nation-wide strike against VAT.

Sandeep Nangia, president of Retailers & Distributors Chemists Association of Delhi (RDCA), which is affiliated to AIOCD, said: “Medicines, which are today taxable at 8 per cent on prices to stockists, will now be taxed at 12.5 per cent on maximum retail price. The burden of the extra 9 per cent to 15 per cent will fall on patients.”

Automobile dealers are also up in arms. Soumein Mondol, a leading auto components wholesaler and member of the Delhi Scooter Traders Association: “Apart from hiking the penalties, VAT leaves more scope for harassment by tax inspectors, besides higher outgo.”

Analysts pointed out that another reason why most retailers and whole-sellers are unhappy is that their chances of doing informal business deals which necessarily implies non payment of duty decrease besides increasing paperwork for them.

However, traders realise that states not implementing VAT will suffer in the long run. “Ultimately, all states will go in for VAT because, despite our teething troubles, it will certainly increase competitiveness,” said Mondol.

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