High taxes tear apart paper firms

Gujarat may lose its position as the largest manufacturer of paper in the country on high excise duty, octroi, sales tax and electricity charges.

Those in the industry say that while other states have announced a range of concessions for the paper industry, paper mills in Gujarat continue to reel under high excise duty, high power cost and raw material shortage. The Indian paper industry is among the top 15 global producers, with six million tonne of output, and turnover of around Rs 15,000 crore.

The industry employs more than three lakh people directly, while around 10 lakh are indirectly employed. It contributes over Rs 2,500 crore annually to the exchequer through various fiscal duties and taxes.

The paper industry in Gujarat is worth around Rs 4,500 crore a year. At present the state's paper manufacturing industry pays 16 per cent on excise duty, four per cent as sales tax on packaging materials and eight per cent other papers. The octroi duty on printing paper is one per cent and on other papers its is three per cent.

Moreover, the industry pays an electricity duty of 20 per cent on power cost. Paper industries in states such as Uttaranchal, Himachal Pradesh, and other states get total exemption on excise duty, sales tax, and income tax. Direct and indirect taxes also adds to the production cost of paper units in Gujarat.

S N Thakar, secretary, Indian Agro and Recycled Paper Mills Association (IARPMA), Gujarat chapter, said, "We are requesting the state government for the immediate implementation of value-added tax (VAT) and applicability of sales tax as per the provisions of VAT."

"We also propose to the concerned government departments to encourage the paper industry of Gujarat by meeting their paper needs from the state only." "In the long term there should be the implementation of entry tax for materials and paper goods entering from Uttaranchal, Himachal Pradesh and any other state," he added.

The leading paper manufacturing industries under IARPMA includes Rainbow Paper Ltd, Kalpatru Papers Ltd, Shevali Pulp and Paper Mill Pvt Ltd in Ahmedabad.

IARPMA has plans to merge Gujarat Paper Mills Association (GPMA) of Vapi with itself, which includes around 100 leading paper mills of the region.

The paper industry in the small and medium scale industries are not able to face global competition and the impact of free trade. Increased import of paper and unhealthy trade practices have resulted in unhealthy competition to the indigenous paper producers.

More than 10 paper mills have closed in the state in the last one year and many are on the verge of closure. The government should study the complex issues of the paper industry at the highest level and should take protective actions.

Although Gujarat contributes more than 30 per cent of the country's total paper production, which is among the world's top five industries by value and seventh largest by employment, the per capita paper consumption of India is still hovering around five-six kg, which is far lower than the global benchmark.

Per capita consumption of paper in China stands at 29 kg, while it is 15-20 kg in several other east Asian countries, which leave alone much higher levels that exists in the US and Europe. The Indian paper industry is among the top 15 global producers, with six million tonne of output, and a turnover of about Rs 15,000 crore.