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Tuesday, Feb 26, 2002

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FMCG cos exercised over excise duties

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CHENNAI, Feb. 25

IF wishes were horses, pigs would fly. With a wishlist as long as a super shopper's bill on the first day of a month, the fast moving consumer goods industry hopes that the Finance Minister will do the trick to boost the fortunes of the industry which has seen the slowdown make a mockery of its nomenclature.

From soaps and detergents to soft drinks and shampoo, industry hopes that the Budget to be presented in a couple of days will put the zing back in the business. The aerated soft drinks industry, of which Pepsi and Coca-Cola are the major stakeholders, has been pleading for the scrapping of the special excise duty (SED) of 16 per cent on soft drinks "as no other food or beverage is, even as of now, subjected to SED". The industry believes that the high tariffs that soft drinks attract is the cause for its slow growth.

Even though SED on aerated soft drinks was brought down from 24 per cent to 16 per cent in last year's Budget, the benefit to the industry, it claims, in terms of actual incidence was negated to a great extent because of the simultaneous reduction in abatement levels for the MRP-based excise valuation from 55 per cent to 50 per cent. Now, it wants the abatement level of 55 per cent restored.

It isn't just the soft drinks industry that is exercised over excise. The Indian Soaps and Toiletries Makers' Association (ISTMA) has also lobbied with the government to increase the level of abatement allowed for soaps, synthetic detergents and scouring preparations. The excise on these products is currently at a single rate of Central Value Added Tax (Cenvat) of 16 per cent and is allowed an abatement of 35 per cent. Now, the association says that the abatements allowed are significantly below the post-manufacturing expenses and are inadequate. In view of the increasing expenses, industry claims, it wants the abatement levels for this category of products to be increased from 35 per cent to 45 per cent. ISTMA has also pointed out, to ram home its point, that the abatement on MRP-based valuation allowed for comparative products like biscuits, paints and disinfectants going through similar trade distribution, sales tax and excise duty structure are already higher at 40 per cent.

In the same breath, ISTMA has also asked for a reduction in import duty on linear alkyl benzene (LAB), a key input in the manufacture of synthetic detergent, which has been fixed at 25 per cent. The Budget last year had made a provision to raise the import duty on LAB to 35 per cent but did not notify it to make it official. Import duty on finished synthetic detergents too is at 35 per cent. Fearing that the Budget may notify this year what it didn't after last year's Budget, the association has pleaded for import duty on LAB to be fixed at 60 per cent of the peak rate of duty, which is currently 35 per cent, to make customs duty on LAB at 20 per cent.

The third prong of ISTMA's plea is the removal of SED of 16 per cent on toilet preparations. Last year's Budget fixed the excise duty at 32 per cent - 16 per cent Cenvat plus 16 per cent SED, which the association says is very high for a product category of daily use and mass consumption. It makes the plea that items like talcum powder, shampoos, skin care creams are no longer luxury items. However, growth in the category, says the association, has been low because of the high prices on account of high levels of excise duty and its cascading effect resulting in high sales and local taxes.

To bolster its argument on lower excise duties, ISTMA says that excise revenue grew at an average rate of 53 per cent a year over a 5-year period ('93-94 to `98/99) when the duties were reduced from 70 per cent to 30 per cent. On the other hand, the average revenue collection growth rate now has reduced to just nine per cent over the past two years (`98/99 to 00/01) when the duty rate has been kept stagnant at 30 per cent plus rate, it contends. With this argument, ISTMA pleads that the SED on toiletries be reduced from 32 per cent to a basic Cenvat rate of 16 per cent. The association will watch, with bated breath, perhaps, the Finance Minister's Budget day speech.

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