Differential taxes a challenge for toy industry

It is not only Chinese competition that toy manufacturers in India, dominated by micro, small and medium enterprises (MSMEs), are battling against. They face a major challenge at home as well, from the differential tax structure on electronic and non-electronic products.

In accordance with the present tax structure, government imposes value-added tax (VAT) at five per cent on non-electronic toys, while electronic toys attract VAT at a much higher rate of 12.5 per cent. Toy-makers are seeking a uniform VAT rate for all categories of toys. Industry says the differential tax structure has been a stumbling block for domestic players, as electronic toys are more in demand.

“About 70-80 per cent of toys are electronic ones. The differential tax structure has been a deterrent for manufacturers wanting to enter the segment. We have given our representation to the government on the matter,” Sunil Nanda, president of the Toy Association of India (TAI) said.

Also, according to Nanda, there is a possibility of Chinese imports escaping the higher tax under the present system. “Sometimes, traders are trading imported toys as mixed products, which includes both electronic and non-electronic toys, and paying the lower tax meant for non-electronic toys on the entire mix. There is always a possibility of such malpractices,” he said.

The Indian toy market is worth over Rs 10,000 crore, with the domestic industry contributing only 30 per cent. The remaining demand is met by Chinese imports.

Raj Kumar, managing director of the Noida-based toy firm Creative Educational Aids, and former president of the Toy Association of India, echoed this concern.

“The differential structure of value-added tax (VAT) on electronic and non-electronic toys is an injustice. Uniformity in tax structure has been our long-pending demand,” he said.

The industry is also seeking fast implementation of a National Productivity Council (NPC) recommendation that two exclusive zones be set up in Mumbai and Delhi. The government had reportedly acquired five acres of land in Greater Noida for setting up a research and development centre, following recommendations by the NPC in 2009. However, the project is yet to take off.

While Delhi contributes 65 per cent of the output of the domestic toy industry’s organised sector, Mumbai accounts for about 30 per cent, Kumar noted.