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| VAT, excise duty concern consumer durables firms |
| Pradipta Mukherjee / Kolkata Jan 21, 2010, 16:22 IST |
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Want a structured lowering to also spur competitive supply, energy efficiency.
Consumer durables companies are worried. Even as they consider raising their prices by March-end due to rising metal prices, any rise in excise duty through the Budget would force them to increase prices again.
Any price rise, say the durables companies, dampens purchase sentiment, especially in rural India, which contributes 60-65 per cent of their overall turnover. Further, sales dip by almost 10 per cent per month for the first two months after any price rise.
Moreover, some states increased value-added-tax (VAT) last week, which has put pressure on the durables companies’ bottom line. For instance, Delhi increased VAT on mobile phones to 5 per cent of sale price, up from 4 per cent earlier. Andhra Pradesh, one of the biggest markets for consumer durables, increased VAT from 12.5 per cent to 14.5 per cent. Other states are likely to follow.
Amitabh Tiwari, head of sales at LG Electronics, says: “We are increasing prices by an average 2 per cent across the board from February this year, because of increase in VAT at a state level, as well as rise in input costs, like steel and other metals. If excise is increased this year, we will have no option but to increase prices once again, because our bottom line is already under pressure.”
“We need a uniform tax structure nationally, across states. For manufacturers like ourselves, it helps in operations and cost calculations if we could pay tax just once. This also ensures a national approach, instead of paying at state level, at Central level, and even goods entry charge in states like Maharashtra,” added Tiwari.
Taxes are 30 to 40 per cent of a product’s selling price for consumer durables’ manufacturers in India. And, companies pay close to 8 per cent excise duty and 10 per cent service tax.
Shantanu Dasgupta, VP - corporate affairs and strategy, Whirlpool India, says: “We expect the goods and services tax (GST) to be rolled out as early as possible because that would help us do away with a multiple tax structure. This would also mean we have to relocate and reconfigure some of our existing warehouses.”
Dasgupta also feels while the import duty on components should be kept low, government could look at extending some support to domestic component manufacturers to enable them to compete with imports. This would also help durables companies to procure more competitive products at better prices and since these would be made in India, prices of end-products are likely to come down.
RECOMMENDATIONS:
* No excise duty increase
* Single tax payment structure
* Goods and services tax (GST) should be rolled out soon
* Indirect taxes at par for IT and non-IT products like consumer electronics and entertainment products
* Improvement of existing supply base in India, both in terms of quality and cost
* Capital equipment required for manufacturing energy-efficient home appliances and consumer electronic products, which are not ozone layer-depleting, should be allowed at a rate of zero per cent
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"I would recommend that the supply base in India is improved and made more competitive, both in terms of quality and cost. The current situation is such that sometimes even imported products are cheaper than locally procured components of the same quality," Dasgupta adds.
"Excise duty should continue to drop, as was the case in the last budget. This would boost industry," says Kamal Nandi, director-marketing, Godrej & Boyce. Electronics consumer goods makers expect the government to reduce the rate of service tax, at par with excise. They also expect the government to implement policies that would facilitate easy financing through banks for customers and small traders, as it would help spur demand.
Samsung Electronics, for instance, suggests the government treat information technology (IT) products and consumer electronics at par. Ravinder Zutshi, managing director, says, “In today’s market, the difference between IT and non-IT products is blurred, as we can watch TV programmes on personal computers and mobile phones. Therefore, it is recommended that indirect taxes for IT and non-IT products like consumer electronics and entertainment products, should be at par."
Zutshi opines that the customs duty on raw materials should be low. He also expects lower Central value-added tax (Cenvat) on energy-efficient home appliances and consumer electronics products. "Most countries incentivise use of energy-efficient products. Currently, there is no incentive for the manufacturers of these products. So, we would recommend that the Cenvat on energy-efficient products and its inputs should be 50 per cent of the general Cenvat rate," adds Zutshi.
The government has introduced a mandatory energy efficiency star-labelling system from this month on home appliances, including refrigerators and air-conditioners. Also, the government is committed to phasing out ozone-layer depleting substances used in air conditioners. Consumer durables companies, therefore, recommend that the capital equipment required for manufacturing energy-efficient home appliances and consumer electronic products which are not ozone-layer depleting should be allowed at zero per cent.
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