GST may push tea prices up by 5-6%

A minimum levy of 12 per cent GST on tea will increase the cost, which will ultimately be passed on to consumers

Tea drinkers may have to shell out 6-8 per cent more for the same cup of brew, once the goods and services tax (GST), which would end the regime of multiple indirect taxes and bring them under one rate, is introduced.

Under the current regime, tea trade, which is classified as plantation industry, is exempted from various taxes and only pays the state value added tax (VAT) at 5-6 per cent, apart from mandated central taxes like road cess, educational cess, etc.

However, a minimum levy of 12 per cent GST will increase the cost, which will ultimately be passed on to consumers.

“This is likely to increase the effective retail prices by a minimum of 6-8 per cent,” said Nirmal Khurana, chairman of the finance committee at the Indian Tea Association (ITA).

Also, teas sold through auction in Assam and West Bengal (which accounts for over 70 per cent of total sale) is currently subject to a lower VAT rate of 0.5 to 1 per cent to encourage right pricing and cover auction cost. Under the proposed GST structure, these states may not have the flexibility to fix a different rate for auction, which will not only inflate the prices but may also make tea auctions less attractive.

The Tea Board of India, on the other hand, is striving to draw in more participation at the auctions by introducing e-auction.

Further, the industry enjoys service tax exemption and no central sales tax is levied for inter-state transfers, if there is no sale. However, under the integrated GST model, one per cent tax on such transfers would result in the prices of tea surging every time the produce is harvested from the gardens, brought to processing factories in different states and sent to warehouses across India. About 95 per cent of tea is produced in just four states (Assam, West Bengal, Tamil Nadu and Kerala) and then sent to seven auction centres in different states, post which it is consumed across India.

Assam houses most of the gardens and accounts for over 50 per cent of total produce, but tea from the state is consumed across India. “Every time we need to shift the tea from a garden to a warehouse or an auction centre in another state, a one per cent inter-state transfer tax is going to be levied. This is despite the fact that it is not a sale but a mere transfer. The same applies for packeteers who buy from one auction centre and then ship it to some place else,” Khurana added.

Concerned with these issues, the Tea Association of India (TAI) has already submitted a petition to Amit Mitra, chairman of the Empowered Committee of State Finance Ministers on GST, to consider leaving tea out of its ambit.

“Under the proposed GST, tea, a plantation crop, should be treated as an agricultural produce and be exempted from the scope of GST,” the letter read. TAI too is thinking of writing to Mitra to keep the GST rate between 5-6 per cent (prevalent VAT rate) and do away with the one per cent inter-state tax.