Budget '07: Excise duty on processed food may go

NEW DELHI: In a move to tame the rising prices of food products, the Finance Ministry is understood to be considering abolishing excise duty on food made from perishable farm produce as well as on packaged foods and food mixtures in the coming budget.

"The Finance Ministry is seriously contemplating to reduce excise duty on processed food made from perishable farm produce, food ingredients, cold chain and packaging materials to zero per cent," highly-placed sources in the Finance Ministry said.

These measures were being considered to have cooling effect on surging prices as inflation, driven by food articles, touched a record high of 6.73 per cent.

Besides, the ministry is planning to abolish excise duty on ready to eat packaged foods and instant food mixtures like dosa and idli mixes to zero per cent "thereby bringing all processed food products under the exempt category," they said.

Moreover, the Ministry was also mulling to provide income tax deduction of 100 per cent for first 10 years for all types of new food processing units, sources said.

"The government recognises that creation of critical infrastructure is a pre-requisite to fill the gaps in the supply chain, so as to link the farmers with the market which alone can improve their economic sustainability," they pointed out.

Earlier the Group of Ministers had okayed a proposal of the Ministry of Food Processing Industries seeking public investment of Rs 1583.60 crore and Rs 2086.50 crore to be utilised in 2007-08 and 2008-09 respectively for creation of such infrastructure to ensure private investment in food processing sector.

The GoM had also suggested that Value Added Tax on processed food be fixed uniformly throughout the country at zero per cent for perishables and 4 per cent for non-perishables, sources said. However, VAT is a state subject and the Centre just plays a facilitating role in smooth functioning of the new tax system.

The GoM also advised the Ministry of Food Processing Industries to discuss with the Commerce Minsitry the issue of bringing Agricultural and Processed Food Export Development Authority (APEDA) and Marine Products Export Development Authority (MPEDA) under its ambit.

To simplify the licensing and taxation system in the processed food sector, the government has broadly categorised food products into three categories-food made from perishable commodities, products from natural produce with longer shelf life and grain based products.

Realising the need for strengthening the Food Processing Ministry's manpower, the GoM has endorsed the Ministry's proposal to augment its staff strength and resources.