Natural rubber is ineligible for refunds as it attracts 4 per cent VAT, according to state tax department officials.
This has made inter-state trade of natural rubber virtually impossible as traders are likely to incur a monthly loss of Rs 5.5-6 crore on an average.
Kerala Finance Minister Thomas Issac said that rubber traders have raised the VAT refund issue and his ministry would consider the matter seriously.
"As per the Finance Bill 2008-09, refund is eligible only for a VAT payment above 4 per cent. But I will look into the matter and will convene a meeting soon to settle the issue. Our government had reduced sales tax on rubber to 4 per cent from 12.5 per cent.
Due to this, the state exchequer suffered a heavy loss. So, if 2 per cent VAT is refunded, it will affect the state revenue badly. There will be a tendency to convert inter-state stock transfer to inte-state deal in order to avail the refund benefit," he clarified.
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Further, the state commercial tax department has clarified that in case of rubber, it is interstate mostly transfer of stock or deal through agents which are not eligible for refund of VAT.
But in the case of sale of rubber to small and medium scale companies in other states, traders can collect only 2 per cent CST from June 1 onwards.
According to N Radhakrishnan, president, Cochin Rubber Merchants Association (CRMA), of the 60,000 tonne average monthly inter-state transfer, at least 25,000 tonne are genuine sales and the remaining either stock transfer or sale through agents.
So the traders are likely to take a hit of over Rs 60 crore by March 2009. This will have serious impact on the trade as rubber is not consumed locally, though 93 per cent of the total production takes place in Kerala.
The total market size of the commodity is Rs 6,000 crore annually. He urged an immediate settlement of the issue in order to bail out rubber trade from a liquidity crunch.