Too many taxes, a hinderance for investment in processed food sector

New Delhi, Feb 7 (UNI) High incidence of taxation on processed foods in the country is acting as a disincentive for investment in the sector, besides adversely affecting its competitiveness, an industry body said.

In its Pre-Budget memorandum presented to the Ministry of Finance, the PHD Chamber of Commerce and Industry (PHDCCI) has suggested a comprehensive fiscal package for boosting the food processing sector in the country.

''Though primary agricultural commodities are mostly exempted from fiscal levies, processed food commodities are subjected to central sales tax of three per cent.

In addition, most of the processed food items are subjected to State VAT at 12.5 per cent and other levies like entry tax, octroi, said the chamber.

The cumulative incidence of these tax make processed foods costly and much beyond the reach of the common man,'' chamber's president L K Malhotra said.

There has been some positive effort from the Government to reduce the incidence of tax on processed foods. In the previous years' Budget, excise duty on various food products has been made nil providing the much needed impetus for the development of the food processing sector.

However, a few items of processed food are still subjected to excise duty such as, vegetable saps and extracts, vegetable waxes, sugar confectionary, cocoa and cocoa preparations, biscuits in excess of MRP of Rs 100 per Kg, instant coffee etc.

The Chamber points out that the revenue collection from these food products would be very insignificant as compared to the total revenue collections from the excise duty.

Therefore, there is a good case of bringing the excise duty of these products to the nil so that there is uniformity in the imposition of taxes across the food processing chain. Importantly, such measures would enhance the investment opportunities in the sector leading to creation of large number of gainful employment.

The industry chamber also catalogues the problems of various sectors in the food processing, sector such as confectionary, biscuits and packaging materials, which are widely used in the food processing industry.

Organised confectionary industry, with a turnover of Rs 1,600 crores providing sustainable employment to many is subjected to a levy of 12.5 per cent VAT in most of the States, as against the previous rate of eight per cent.

This segment, which is already plagued with high input costs on account of increases in prices of sugar, milk and milk products, glucose etc have to spend substantial amount to maintain the distribution network.

The industry is also faced with stiff competition in the domestic market on account of several players and even multinational companies, which have installed the plants with state-of-the-art technology.

Heavy burden on account of higher input costs and taxes are mostly borne by the industry since a mild price increase would result in loss of substantial market.

''Sugar confectionary should be exempted from excise duty since it would lead to increased consumption and higher demand for agricultural produces like wheat, sugar, barley etc,'' Dr Malhotra said.

A related issue is the biscuits in excess of MRP of Rs 100 per Kg, which attracts excise and at the same time reeling under the pressure of high input cost, such as packaging, transportation etc.

In the previous Budget, duty exemption was granted to biscuits having an MRP of Rs 100 per Kg. This had provided a major relief to the biscuit industry. Now only 25 per cent of the industry is subjected to duty and the cost of collection would not justify the revenue recovery.

Another aspect is the excise duty on packaging materials.

Packaging cost constitutes a large proportion of the cost of food products. Food industry uses packing materials such as printed laminates, pet jars, and corrugated cartons etc, all of which currently attracts 16 per cent excise duty.

This is a huge impost, which the processed sector can neither absorb nor pass it on to the consumers on account of the peculiar nature of the industry. The chamber therefore suggested that the excise on packing materials used by the processed food sector is brought down to eight per cent.

UNI BJR PBB DB2011