VAT may stop smuggling of rubber

The natural rubber (NR) market will benefit considerably with the introduction of the value added tax (VAT) from April, 2005.

On the recommendations of the empowered committee on VAT, chaired by Ashim Dasguptha, the uniform tax on rubber will be 4 per cent. This will be a boon to the natural rubber market in Kerala, according to traders here.

At present the purchase tax is 12.65 per cent which includes the additional sales tax. The introduction of VAT may cause a reduction in the cost of purchasing rubber by Rs 5 at the present market rate per kg.

According to N Radhakrishnan, president, Cochin Rubber Merchants' Association it was a welcome change and will effect a sea change in the market. This will discourage smuggling of NR through the borders with Karnataka and Tamil Nadu.

In Karnataka the sales tax is 4 per cent and in Tamil Nadu it is 8 per cent. The uniformity in tax rate will almost stop cross-border illegal transaction and the state government can avoid a revenue loss of at least Rs 65-70 crore per annum.

NR is included in the list of agriculture and allied products and the tax for 218 products included in the list is 4 per cent. Incidentally, coir and coir products will be the major casualty with the introduction of VAT.

At present there is no sales tax on these products. But the empowered committee recommended taxing coir and coir products at 4 per cent.

This will spell the deathknell for the industry since it is struggling to survive and the livelihood of poor people will taken away, especially in Alappuzha district. The traders represented the issue to Dasguptha while he was in Kerala last week.

He agreed to consider the problem sympathetically and he expressed reservations that there would not be resistance from other states since coir is produced mainly in Kerala.

He also said that CST would not be withdrawn immediately and it will be fully collected during 2005-06. This will be reduced in a phased manner in the subsequent years.

Entry tax will also continue as most of the state finance ministers are against the withdrawal of it. The new tax structure will be four-tier, 0 per cent, 1 per cent, 4 per cent and 12.5 per cent.

Gold and medicines will have one per cent tax and 46 items will be exempt from tax. He also said that AST, turnover tax, surcharge and other taxes will be abolished when VAT is introduced.