Tea prices may rise Rs 30/kg in Maharashtra

MUMBAI: The price of tea will rise Rs 20-30 per kg in Maharashtra if the state government decides not to retain the commodity in the select list of items that attract only 4% value added tax (VAT). Tea comes under schedule C of the VAT list until March 31, 2010. Once it is out, it would attract 12.5% VAT. The government is yet to take a decision on the issue.

In 2008, the state decided to keep tea under schedule C until the end of the financial year 2009-10. However, with no word from the government on a further extension, tea traders in the state fear that the beverage will fall under a residual head that attracts 12.5% VAT, forcing them to raise prices for consumers who are already reeling under the effects of double-digit food inflation.

“If 12.5% VAT comes into effect, tea prices would definitely rise by Rs 20-30 a kg which will be too harsh for the common man and add to the serious problems of food inflation, with which the central government is struggling to fight,” said Harendra Shah, managing director of Girnar Tea and president, Federation of Tea Traders Association of Maharashtra.

Sanjay Bhatia, sales tax commissioner, Maharashtra, was not available for comment. But sources in the finance ministry indicated that the state may change the category in which tea has been placed currently. “Every other state, of late, has raised sales tax on various items. Most states, in fact, have hiked VAT on all items in the 4% category except the declared goods — that’s Centre’s prerogative. So Maharashtra may follow in their foot-steps,” this official said requesting anonymity since the state budget is just a day away. The Maharashtra government last week raised VAT on 94 items by 1%. The decision is expected to help the state mop up an additional Rs 600 crore.

“Tea may be placed in this category if not in the highest bracket, that attracts 12.5% VAT”, this official hinted.
Mr Shah said that if VAT on the beverage were to go up from 4% to 12.5%, lower medium quality of tea currently priced at Rs 180-200 per kg would shoot up to Rs 200-220 per kg while premium tea prices would rise to Rs 325-350 per kg from the current Rs 300-320 per kg.

The federation has sent memorandum to Maharashtra finance minister Sunil Tatkare, Empowered Committee of Finance Ministers on VAT, Tea Board & Navi Mumbai Chamber of Commerce asking them to clarify their stance.

Skimmed milk powder, which is listed under Schedule-C of the VAT Act, is taxed at 4% in all the states. Similarly, instant coffee has been brought to the 4% VAT category from 12.5%, being a daily consumption item and essential beverages. Thus, if tea is not brought to 4% VAT list in Maharashtra, it will put an additional burden on the budget of households in the state, who consume more tea than coffee.