The move to introduce more commodities under the maximum retail price (MRP) based tax assessment has stirred up protests from many quarters, especially the electronic appliances industry, though the revenue department expects limited impact on additional revenue collection from the move.
This is because while some items like brown goods and electronic appliances have high retail mark-up, other items like razor and razor blades have low retail mark-up which would not lead to significant additional revenue generation.
A peculiar case is that of pan masala wherein an MRP-based assessment has been levied on packs above 10 gms. This has infact led to a discrepancy since the packs less than 10 gms have been levied a higher excise duty on their rateable value, while the packs equal or above have an abatement of 50 per cent on their MRP which would lead to a lower tax payment by them.
"In the case of pan masala, packages above 10 grams have been subject to the MRP-based excise assessment which infact would result in a lower tax collection than under the previous regime. For instance, under the previous regime, companies had to pay an excise duty of Rs 12.80 per 10 gm pack. Under the MRP-based tax regime, companies owuld have to pay only Rs 12 per 10 gm pack since there is a 50 per cent abatement on the MRP", pointed out an executive with a pan masala company.
However, the electronic appliances and brown goods manufacturing companies are unhappy since the move to an MRP system has been a double blow, not only has the tax payments gone up but also the abatement levels on their MRP has been lower than the industry expectation.
Inalsa is already firming up plans to submit a repersentation to the government through the various apex chambers of commerce including CII, FICCI and Assocham, pointing out the additional tax burden on the electronic appliances companies which cannot be fully passed on to the consumers.
A senior executive of Inalsa said: "We seem to be hurtling back to pre-1990 era very fast with too many controls. The entire reforms process has come to a halt and we will now very soon reach, it seems, a Hindu rate of growth of 5 per cent and below.We had asked for 60 per cent abatement on MRP against which the government offered a 40 per cent abatement which is too low."
Similar concerns were voiced by other electronic appliances manufacturing companie. An executiuve of Maharaja Appliances pointed out: "This budget has totally crippled this industry. The impact of the 8 per cent import duty on product costs actually works out to be 12-13% for our sector, since it includes the price effect on our input sector like steel, copper, aluminium and plastic. By working out the effect of the 40 per cent abatement, the total additional duty burden on the cost of products is around 26%. This can't be translated into price rise."
A similar concern was voiced by Saurav Adhikari, Tefal India: "Though we welcome the logic of excise on MRP, the level of abatement allowed has been completely unrealistic. This will lead to additional suffering to an industry which is already bleeding.This seems like a regression into pre-1991 scenario and is an exteremely dangerous situation."
Stating that the reforms process was moving backwards, he said that the customs duty of 8 per cent actually translates to an increase of 13 per cent coupled with the 17.65 devaluation of the Rupee in this one year alone results in almost 30 per cent level of duty protection to this sector. Even if India has 45% of peak rate of duty, this makes this sector one of the most protected sectors in the economy. I donnot think the Indian customers can take a price rise of 10 per cent on top of a projected inflation of around 7 per cent".
However, the effect of the move to a MRP-based excise assessment regime on a razor and razor blades is expected to be neutral.
"Under the MRP-based assessment, 60 percent of the MRP is the assessable value over which an 18 percent duty rate will be imposed. We have worked out that the impact of this on razor and razor baldes and found it to be negligible and the tax payment by the company on these items would not increase significantly", revealed a source close to Gillette India.
