Tuesday, December 29, 2009


Indian food industry has been crying hoarse for the last 5 decades about high incidence of taxation on processed foods that make their products cost prohibitive to the consumer. High product cost naturally does not allow the industry to expand its production base and realize its full potential as an agent of transformation for the Indian economy. Value addition to agri-horticultural and livestock produce is a sure route for infrastructure growth and generate vast employment opportunities but the stubborn attitude of the governments both at the state and central levels in imposing taxes and duties has prevented such a positive development in the country. No seminars, conferences, workshops and lobbying during the past were able to change this attitude and therefore it is amusing to note the statement by the trade body like Assocham repeating the same argument at the fag end of the first decade of this millennium.

"But the commerce trade body cited prohibitive taxation rates on processed fruit and vegetables as a cause of the problem. Dr Swati Piramal, president of the trade association, said fruit and vegetables were liable to Central Sale Tax, VAT and local levies while unbranded food products were either exempt or taxed at concessional rates of around 4 per cent. Piramal said the tax "anomaly" was directly responsible for the low percentage of these products that are processed. The result was waste and inefficient use of fruit and vegetables reaching R500bn (€7bn) a year, according to an Assocham estimates. A developed processing industry would help to reduce these wastages and raise farm income, it said in statement. Assocham added the inequalities in tax were even more unreasonable as "branded products carry the brand owner's assurances on quality and hygiene". Consumers should not be forced to pay higher prices to obtain safer products, it said. The body also called for a flat VAT rate for all types of food and an exemption from Service Tax in a range of areas including transport of goods".

No doubt the situation to day is far better than that existed before the advent of the specialized Ministry of Food Processing Industries at the Center, especially the reduction of duties on packaging materials used by the food industry. Taxes imposed by GOI are not considered burdensome, especially after drastic changes in Excise Duties on food products during the last one decade. Sales tax, Octroi, entry tax etc come under the purview of state governments and it is here that not much perceptible change has taken place. These local taxes are the main constraints for the development of food sector.


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