Duties
call
A
repressive tax structure is encouraging the unorganised sector at the
cost of stunting the growth of the organised Indian food processing
industry
The main hindrance today to the development of food industry in the
country is the high price of food products in the local market. In most
developed and developing countries this price differential between raw
material and finished goods is marginal. This in turn has helped in
promoting consumption and export of food products thus leading to increased
farm income and technology upgradation.
However, in India, the total tax incidence by way of excise, sales tax,
turnover tax, cess and octroi is as high as 25-30 per cent in case of
some of the products.
Recognising this fact, excise duties were removed from most of the food
products, especially those using horticulture produce as raw materials,
since the initiation of the liberalisation process in 1991. Such fiscal
incentives had generated phenomenal growth in this sector. As a result
of the delicensing, the industry attracted more than Rs 61,000 crore
of investment of which Rs 7,000 crore was in the form of foreign investments.
This sector achieved a growth rate of 20-25 per cent and became a major
export earner even as the overall manufacturing sector recorded a slow
growth.
This action was reverted in 1996-97. After the tax imposition, the industry
recorded a negative growth rates.
Moreover, taxing branded packaged foods has resulted in encouraging
local outlets where improperly packaged food items are sold. The microbiological
content of such food is far below the accepted international standards.
On the other hand, the organised modern industry, which is still struggling
to
perform under adverse situations and trying its best to improve the
quality of food for the
common man by the application of new technologies of international standards,
are being taxed heavily. Most problems of adulteration and contamination
can be solved with the promotion of sales of packaged foods. Thus, in
the interest of public health and to reduce the expenditure and pressure
on public health systems, we must promote hygienically packaged foods.
A comparative study of the
|
Table
1: Tax incidence country wise
|
|
Country
|
Total
tax incidence
|
| Philippines |
VAT
10% - No other taxes |
| Indonesia |
10%
Consumption tax in organised large shops only |
| China |
17%
VAT - No other taxes |
| Netherlands |
All
government levies amounting to 14% |
| Finland |
All
government levies amounting to 14% |
| UK |
All
government levies amounting to 15% |
| Ireland |
All
government levies amounting to 17% |
| India |
All
government levies amounting to over 38% |
taxes
levied by the Governments of some Asian and European countries
(see table 1) clearly shows that the products attract lesser
duty in other countries than in India. The anomalies in the present
tax structure have been discussed and explained below. The same brings
out clearly the repressive nature of the tax structure of the food processing
sector in the country.
Scenario 1: Where no value addition is done on the product by
large scale integrator / processor in the supply chain, the total tax
incidence is from 0-6.08 per cent across various products (See table
2). The tax structure does not give any benefit to players who are ensuring
product integrity and working towards an increase in shelf life.
Scenario 2: In case a product is packaged and labelled but not
branded and sold by a large scale integrator / processor in the supply
chain, the total tax incidence is from 0-22 per cent across various
products if the product is packaged and labelled but no maximum retail
price (MRP) is mentioned (See table 3). As can be seen, the tax structure
does not encourage companies to carry out primary and secondary packaging
and hence discourages the following:
• Protecting the product from contamination
• Arresting wastage of the product
• Ensuring food safety and providing additional value to the customer
• Increasing shelf life of the product by ensuring better and scientific
packaging
• Undertaking brand building exercises and hence differentiating
from a host of unorganised players in the industry.
Further, the cost of the product increases so much after attending
to packaging and labelling that the product becomes expensive compared
to unbranded, unhygienic, non packaged product. Thus the tax structure
affects the price competitiveness of the packaged and labelled products.
Players are thus encouraged to indulge in unsafe practices, which are
non compliant with HACCP / CODEX and other international established
practices....
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