Timber body sore over tax disparity

The Gujarat government, which would see over Rs 880 crore coming into its coffers through the revised value added tax (VAT), is at loggerheads with timber merchants.

While the merchants claim that the state might lose Rs 50-100 crore due to 'unavoidable tax evasion', the sales tax department is asking them to pay the tax evaded so far.

After paying a higher VAT of 12.5 per cent on timber, the timber merchants process it to manufacture packing wood and sell it at a lower VAT of 4 per cent.

The merchants then have to apply for refund of additional 8.5 per cent VAT paid on timber. Citing delay in allocation of refunds, the industry claims to have been unable to avail of refunds from the government. Moreover, they fear that since the VAT duty has been increased on timber and packing wood, the refund amount too will grow.

Imports form 80 per cent of timber supply in Gujarat. As an end-product, timber is taxed at 12.5 per cent currently unlike in other states like Haryana, West Bengal, Delhi and Uttarakhand, where it is 4 per cent, they said.

"It takes anything between six months and a year to avail of the refund, which is eventually affecting the sales. Moreover, unorganised traders from neighbouring states sell their unbilled products at much lower prices in Gujarat. While this undue competition adds up to our losses, the state government is also losing its revenue since no tax is levied on them. Once the rates are revised by April, the government will lose an additional Rs 50-100 crore. Hence, we have been requesting the government to slash the tax rates on timber from 12.5 per cent to 4 per cent so that the traders won't have to apply for refunds and can face the competition from the unorganised traders," said Purushottam Patel, joint secretary, Kandla Timber Association.

But, sales tax commissioner, MM Srivastava said, "Timber merchants have been evading tax since long. They should rather cough up the pending taxes instead of asking for a reduction in tax rates."

According to Pravin Patel, secretary, Gujarat Timber Merchants' Federation, the total timber sales in Gujarat is around Rs 1,200 crore. While the sales figure of packing wood is uncertain, Patel said traders in Gujarat might be applying for refunds worth several crores.

"In January, we had written to the government seeking a cut in VAT on timber so that the packing wood traders don't have to apply for refunds. If slashed, we believe the traders can easily increase their sales by 15-20 per cent, which will eventually mean more revenue for the government. However, the recent Budget doesn't seem to carry any effect of our requests," said Patel.

The disparity in tax rates have also deterred several timber and plywood players from setting up their mills. The Kandla Timber Association, for instance, had witnessed acceptance of around 208 licence applications but only 100 of them materialised.

"The rest are either delaying their plans due to the tax disparity or might have already begun their work in other states where the taxes are uniform," added Purushottam Patel.

Meanwhile, post-Budget, the industry is set to witness a price hike in timber by 10-15 per cent.