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Indian tea association

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Indian tea association

  1. 1. INDIAN TEA ASSOCIATION CENTRAL BUDGET 2011-12 PRE-BUDGET MEMORANDUM : ISSUES RELATING TO TEA INDUSTRY Kumar Saurabh Current Tea ScenarioProductionThe cost of production of Tea in India continues to be the highest among all tea producingcountries. The high cost of production in India has been a critical factor impeding India’scompetitiveness of India tea.The Tea plantation industry has passed through difficult times since 1999 when average pricerealizations in the auction centres fell sharply leading to losses across industry and closure ofseveral tea estates in North and South India. Fortunately the situation has improved from 2008.This is welcome scenario as this will enable the tea plantation industry recoup accumulatedlosses and to make fresh investments for future growth.Tea production in 2009 touched 981 million kgs, 2010 will see a sharp decline to around 960million kgs due to adverse weather conditions and virulent pest attacks. This will adversely affectthe revenue stream of tea companies and further impact CoP.Exports2010 is expected to see higher exports. During January to October 2010 exports are up byaround 6 mkg vis-à-vis 2009. The ITA with the support of Tea Board is making strenuous effortsto increase exports.Tea Industry acknowledges the vital role of DEPB (Duty Entitlement Pass Book) & VKGUY(Vishesh Krishi Gramin Udyog Yojana) in promoting tea exports. In the fiercely competitiveexport market continuance of DEPB & VKGUY is called for in order to sustain competitiveness ofIndian tea exports.PricesIt would be noted that the gains in prices from 2008 after a prolonged recession have beenlargely offset by significant increases in the cost of key inputs such as fertilizers, coal, fuel, gasand electricity.A major component of the Cost of Production is the Cost of Employment which includes SocialWelfare Cost on account of statutory provisions like water supply, medical, primary education,etc. to be provided to workers in India under the Plantation Labour Act. In addition to rising costof amenities there is significant increase in the wage cost which is periodically revised throughbilateral negotiations.While the Tea Industry and the Tea Board has already taken active measures towards reviving the Teasector, there is need to address certain key issues in the forthcoming Central Budget 2011-2012 towardslaying a foundation for sustainable growth which will help protect employment in this highly labour intensiveindustry. 1
  2. 2. Issues Justification Suggestions for ConsiderationDIRECT TAX1. Section 33AB The provision was first introduced in the The ITA is aware that the of the Income Income Tax Act in 1985 keeping in view Government of India in presenting Tax Act 1961: the volatility and cyclical nature of Tea the Direct Tax Code seeks to prices --- given that Tea is largely traded at consolidate and amend laws Migration to the commodity level and susceptible to the relating to Direct Taxes --- Direct Tax vagaries of global Demand:Supply. The including Income Tax --- towards Code intrinsic logic was that Tea Companies an efficient and equitable Tax should be induced to set aside profits in system. The Government good years for deployment in development furthermore has undertaken a activities in relatively poor years. Section comprehensive review of Tax 33 AB which had been initially introduced incentives. in respect of Tea, currently covers Tea, While the general philosophy of Coffee and Rubber providing a deductible the Direct tax Code of migrating allowance of upto 40% pre-Tax profits. from profit linked incentives to investment linked incentives is Section 33 AB provisions have also appreciated, ITA would submit received endorsement in the Report of the that the Sec.33AB provisions, Committee on Competitiveness of the in effect, clearly mandate that Indian Tea industry which had been investments in key constituted by the Commerce Ministry developmental activity have to under Shri S. N. Menon, former be undertaken from the Commerce Secretary, Government of deposits made by tea India. companies (out of pre-tax profits) with the NABARD. The ITA would therefore request the Government of India for incorporation of Section 33 AB provisions in the forthcoming Direct Tax Code.INDIRECT TAX2. Continuance of In order to give thrust to value addition and The Association would request concessional quality upgradation the Government the Government to extend Customs Duty extended the benefit of concessional concessional duty for the said on Specified import duty @ 5% on certain plantation machinery items to ‘Nil’ for a Tea Machinery machinery vide Notifications No. further period of 3 years from Items 175/2003-Customs and No. 176/2003- 1st April 2011 with ‘Nil’ Special Customs both dated 10.12.2003. The Additional Duty. Government thereafter has been extending the benefit every year. The last extension of the concessional basic Customs Duty of 5% has been done vide Notification No. 21/2010-Customs dated 27.12. 2010 which remains valid upto 31stMarch 2011 for the following items:- Machinery for Tea Plantation Sector (i) Tea bagging machine, falling under tariff item 8422 30 00 2
  3. 3. Issues Justification Suggestions for Consideration (ii) Tea packaging machine, falling under tariff item 8422 30 00 (iii) Colour sorting machine, falling under sub- heading 8433 60 (iv) Tea leaf cutting-rolling machine, falling under tariff item 8438 80 (v) Mechanical harvester, falling under tariff item 8433 59 00 (vi) Tea pruning machine, falling under tariff item 8201 60 00 (vii) Mist blower, falling under tariff item 8414 59 20 (viii) Sprayer, falling under tariff item 8424 81 00 (ix) Rotary Sifter falling under tariff item 8433.60 (x) Lateral Cyclone Winnower falling under tariff item 8433.60 (xi) Dividing Bypass falling under tariff item 8438.80 After a long recessionary period the industry is now poised for growth and development. At this time the industry should be supported with continued concessional facilities as it will enable tea industry to upgrade processing infrastructure particularly towards value- addition. Now that peak rate of import duty of all items have considerably reduced since 2003 when 5% concessional import duty was effected, it would be helpful to the tea industry if the concessional duty for the above machinery items is reduced to ‘Nil’ towards containing the cost of the final product and make Indian tea globally competitive in export market.3. Concessional In the world market the use of Tea Bags Towards a major thrust in Import Duty and Multiwall Paper sacks is rapidly exports with particular 3
  4. 4. Issues Justification Suggestions for Consideration of Certain increasing. Demand for Filter Paper, emphasis on value-addition Other Vital Nylon Cloth, etc. in Tea Bags has and quality upgradation the Items therefore been continually increasing. Association would request The Total incidence of Duty on importation of Ministry of Finance is urged to Filter Paper for use in Tea Bag under is take appropriate action towards very high (36.2% with Basic Duty 16% & fully exempting Customs Duty other incidental duties), making the final on the Filter Paper. product non-competitive in the international market. Filter Paper is a critical requirement in Tea Bag. It would be further urged that The following items are of vital importance import duty of Nylon Cloth, in order to scale up value addition and Multi-Wall Paper Sacks, Kraft exports : Paper and Tissue Paper should also be made ‘Zero’. a) Filter paper (falling under tariff item 4823.20) b) Nylon Cloth for Tea Bags (tariff item 5911.90) c) Multi-Wall Paper Sacks (tariff item 4819.40) d) Kraft Paper (tariff item 4810.39) e) Tissue Paper (tariff item 48.02) These products are either not available in the indigenous market or are of very poor quality. Since the Filter Paper continues to be unavailable from domestic manufacturers, total Customs Duty exemption on import ofOTHER FINANCE RELATED ISSUES4. Continuation of The Orthodox Subsidy Scheme, launched The Association would request Orthodox in January 2005 to boost production of the Government to allocate Subsidy Orthodox Tea, has helped in correcting the adequate funds to the Ministry Scheme product-mix and enabled availability of of Commerce to enable Tea more Orthodox variety of teas for Board to disburse fund for sustaining the Indian exports. Due to non- backlog period of 2008-09 & release of fund by the Ministry of 2009-10 and also to cover 2010- Commerce Tea Board is yet to release the 11 & the balance period of 11th subsidy for 2008-09. Plan Period. The Ministry is also requested Being appointed by Tea Board M/s A C to extend the Orthodox Nielsen has strongly recommended the Subsidy Scheme for the 12th need for continuance of the Scheme for Plan Period. the balance period of 11th Plan Period and extend for the 12th Plan Period.5. Sharing of The high cost of production (CoP) in India (i) ITA would request the Social Cost has been a critical factor impeding India’s Government to evolve a competitiveness. A major component of suitable mechanism whereby the CoP is the cost of employment which this high social welfare cost includes social welfare cost. Welfare cost could be substantially inclusive of the concessional value of food mitigated. grains supply to tea estate workers work (ii) Moves should be initiated to out to more than Rs. 8/- per kg. of made examine whether various tea. Government schemes relating to : • Sanitation 4
  5. 5. Issues Justification Suggestions for Consideration The Inter Ministerial Committee (IMC) (Total Sanitation Campaign) recommended sharing of Social & • Medical facilities (through Infrastructural cost between Industry and NRHM) Central & State Government in the ration • Education (through Sarva 50:40:10. Subsequently another Shikshya Abhijan) Committee under the Addl. Secretary could be extended to the tea (Plantation), MoC examined ways to tailor plantation sector. & implement various Government Schemes towards defraying cost in certain (iii) Substantial expenditure is areas like medical facilities, education, incurred for construction of sanitation, conservation, drinking water Housing for workers. ITA would etc. suggest for re-introduction of the Loan-cum-Subsidy Scheme based on current cost of construction, as per the Government specifications, of a worker’s quarter. (iv) Food grain subsidy is a high cost component. Government is urged to consider issuing foodgrains at BPL rate for at least the non-working segment of the dependent population residing in the estates.6. Sharing of In order to restore confidence and morale The ITA represented to the both Security of the management and workers of the State & Union Government for Costs Tea gardens in Assam in the midst of high financial support towards maintain insurgency, the Association raised a the Security Force. Security Force (namely ATPSF) in 1993 as - The Government of Assam, per State Government’s advice. thereafter, approached the Union Home Ministry for The Government of Assam has additional funds to support the restructured the ATPSF to form the Assam State Force deployed in the Industrial Security Force (AISF) in 2009 for Tea sector. giving permanency and conferring higher - The Union Home Ministry also pay structure in the line with the Assam recommended this case to the State Police under which the annual cost Finance Ministry. per unit has gone up from Rs 10.4 lakhs to around Rs 28 lakhs. The Finance Ministry is understood to have conveyed its The annual aggregate expenditure for the inability to provide funds under users as a whole works out to around Rs the Security Related Expenditure 30 Crores with the incidence of cost (SRE head) stating that such between Rs 2 to Rs 3 per kg of made tea. funds cannot be made available This is unsustainable for the tea for a private force. gardens. It is clarified here that the AISF is a Government Force raised by the State Government and deployed to the tea industry. The issue of financial support for the Force, therefore, needs sympathetic review.It is to be mentioned here that the Indian tea industry is serving National priorities by way of – 5
  6. 6. • Generating income and livelihood directly or indirectly for more than 10 million people in the country • Women account for 50% of employment • Supporting socio-economic development in remote and under-developed regions such as the North-East.The Association trusts that the above submissions would be favourably considered bythe Ministry of Finance, Government of India for the Union Budget 2011-12.15.12.2010SP:RNC: central-budget for 2011-12 6
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