The Telegraph
Since 1st March, 1999
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Packed food tax stirs up a spat

New Delhi, Feb. 24: A battle royale has broken out between processed food manufacturers backed by BJP top-brass and the finance ministry over the move to levy excise on packaged food.

Verghese Kurien, the father of the dairy revolution in India, has written a letter to the finance ministry asking it not to impose any excise duty on processed food. Kurien is also the chairman of Gujarat co-operative Milk Marketing Federation (GCMMF), the co-operative set up that owns the Amul brand.

The Kelkar committee, appointed by the government to recommend tax structures for the forthcoming budget, had said that central excise duties on processed food products should be fixed at the lowest slab (between 6-8 per cent).

The move this time is far more serious as it has the support of top brass in the finance ministry. However, the BJP leaders have been lobbying hard against it and have even contacted the Prime Minister in their efforts to scuttle the measure. Several major domestic processed food makers are known BJP sympathisers.

Yashwant Sinha, the then finance minister, had kept the excise duty on processed foods at 6 per cent. However, a couple of years ago, it was exempted from excise after lobbying by the same group.

Piroz Khambatta, chairman and managing director of Rasna Pvt Ltd, points out: “Anomalies in excise duty also need to be addressed. While some food products have 0 per cent excise duty, others have 16 per cent. The excise duties for all food products should be 0 per cent,” he said.

Aerated soft drinks and soft drink concentrates still attract a special excise duty (SED) of 16 per cent. Consequently, the cola majors are lobbying to bring it down. It attracts the same level of SED as pan masala, chewing tobacco and other tobacco preparations.

Sources at Dabur India Ltd said that in the wake of the Kelkar committee’s recommendation to impose excise duty on processed foods, as a leading FMCG company with major interests in processed foods, it feels that the chances are low for such a hike to be implemented as that could upset the industry.

The processed food industry attracts an average sales tax of about 12 per cent. This should be brought down, said a Dabur spokesperson. “Consumers in India do not pay a premium on processing. If prices come down, it can be translated into cheaper pricing, more sales and more revenue for the government,” he added.

The ministry of food processing industries has also taken up the issue with the finance ministry to ensure that excise duty is not imposed on this industry. The government has invested large sums of money in various food processing projects.

A spokesperson for GCMMF said: “The finance ministry move to include processed foods in the excise net is part of the Kelkar committee report, which primarily asks for all products to be brought under the value added tax (VAT)”.

Under the VAT system, modvat facilities are available that offset some of the excise amount.

However, industry sources said that if excise is imposed, the overall tax amount to be paid by the traders will go up, which is not conducive for the entire business, from the producers to the retailers.

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