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VAT hurdle for biscuit firms

Imposition of VAT (value-added tax) and subsequent rise in the price of raw material is affecting the biscuit industry in the Northeast, which incidentally has a high consumption pattern.

The current rate of VAT is 13.5 per cent, which acts as a deterrent to the growth of the industry. “The rate has been increased by one per cent and this is affecting the cost of production. With the enhanced rate there has been a subsequent increase in prices of major raw material such as wheat, flour, vegetable oil, sugar, milk, packaging material, fuel, wages, et al,” said M. Hazra of Nezone Biscuits Pvt Ltd, Tezpur.

The Indian Biscuit Manufacturers Association (IBMA) has, on behalf of the industry, taken up the issue with the state governments as well as with the empowered committee on VAT, seeking reduction in the rate on biscuits to four per cent. IBMA estimates the annual growth in the range of 20 to 25 per cent and above in the event of reduction in the rate of VAT on biscuits to 4 per cent.

The annual production of biscuits in the region is 72,000 metric tonnes.

“The percentage share of the region in the overall market (which is pegged at Rs 15,000 crore) is 15 per cent. The trend of growth in the next five years is 12 to 15 per cent,” Hazra said.

Nezone Biscuits is a leading manufacturer in the region with an annual turnover of Rs 25 crore. “Our bestselling brands are Top, Snacks, Coconut and Butter Bisk. But we are yet to come up with multi-grain biscuits,” he added.

Apart from Nezone, Madhabi, Gattani, Abhinav, Kishlaya, Basak are the other local players in the Northeast market.

The big players like Brittania, Parle, Sunfeast, Biskfarm are a threat to the local brands. “They are trying to drive the local brands out of the market by keeping their prices low,” he added.

Madhabi Biscuits Pvt Ltd, another Tezpur-based company with a turnover of approximately Rs 20 crore, has been able to penetrate the market as well. Butter Plus and Marie Lite are its leading brands.

“However, since the introduction of VAT, our profit margins have gone down drastically. Subsequently, the pricing of our brands are now on a par with the big brands. Hence, the leading players are eating into our market share. I feel an entry tax should be imposed on them so that their pricing remains higher than ours,” a source at Madhabi Biscuits said.