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Tea traders seek tax cuts to build on gains

Indian tea planters, just emerging from a punishing two-year price slump, say they want lower excise duties and higher tariffs in this month's federal budget to modernise and safeguard the industry.

Planters in India, the world's biggest consumer and producer of tea, fear further trade liberalisation could expose them to a flood of cheap imports from neighbouring Sri Lanka, the world's leading exporter, as well as from China and Indonesia.

"We're just coming out of a very difficult period. We want government support to help us invest more money in the business," Indian Tea Association (ITA) chairman R S Jhawar said.

The planters said they were hoping for broad tax concessions in the budget to be announced on February 28.

Tea prices have risen since mid-December after beleaguered planters, who employ more than a million people mainly in remote strife-torn regions of northeastern India, stopped production of end-season tea two weeks ahead of schedule.

NEED TO MODERNISE

But planters said they have still not hit the level of profitability needed to modernise and invest in packaging and branding.

The ITA is seeking bigger tax breaks to invest more money in the estates whose maintenance suffered last year when prices plunged 18 per cent, forcing many to sell below cost.

At present, 20 per cent of planters' profits are tax free as long as they are earmarked for capital investments. The planters want that raised to 40 per cent.

"We're the most heavily taxed industry in the country," Askok Lohia, former chairman of the Darjeeling Planters' Association, said

Sixty per cent of a tea firm's profit is charged at the federal income tax rate of 35 per cent and the balance attracts a state levy of 45 per cent.

This creates a heavier tax liability on tea producers than on other trades which pay only the federal tax on the total income, Lohia said.

BIG PRODUCERS

India produced 805 million kg of tea in 1999, down from a record 870 million kg a year earlier. Output in 2000 is pegged at about 840 million kg. Tea exports last year rose to an estimated 198 million kg from 190 million kg in 1999.

The tea trade is also seeking exemption from excise duty of Rs 2 per kilo of tea sold.

"This duty is levied on bulk tea. Since tea is mainly sold in auctions, we can't even pass on this cost to the consumers," an ITA official said.

Planters said they were also worried about superior packaging and aggressive advertising which foreign firms could use to capture the market in India.

"We should be allowed duty-free import of packaging machinery," Lohia said.

Jhawar said the government should give better protection to the domestic industry from cheap imports.

India levies a 35-per cent duty on imported tea and allows 15 million kg of Sri Lankan tea to be imported at a concessional duty of 7.5 per cent under a regional agreement.

"The government should increase this to 100 per cent," Jhawar said.

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