The Hindu Business Line : VAT confusion sends rubber prices tumbling

THE uncertainty prevailing in Kerala over the application of value added tax (VAT) on natural rubber from April 1 this year has started to drive the prices down.

However, experts are of the view that prices may not fall beyond a certain extent since exports are now showing signs of picking up on higher international prices.

The RSS four closed at Rs 50.50 a kg at Kottayam on Tuesday, down from Monday's Rs 50.75 a kg.The RSS 4 grade ruled around Rs 54 a kg in the first week of January but except for a few days during the month, its price has perpetually been on a journey downhill till date.

Industry sources now blame the confusion over the VAT the prime reason for fall in rubber prices. The Government, while announcing the introduction of VAT from next fiscal, said rubber dealers would have to pay 12.65 per cent purchase tax for their closing stock on March 31.

"Dealers are now trying to dispose of their stocks," the source said. Since rubber will have only a VAT of four per cent from April, tyre manufacturers are also buying the commodity in a limited way.

"But for this uncertainty, prices would have been in the range of Rs 56 to Rs 58 a kg now," the sources said.

Also, small dealers who are the first contact with growers, are worried that VAT will make their lives a lot more complicated as it is levied on the first point of purchase. The dealers are not used to handling complex taxation issues as the tax is imposed at the last purchase point in the State, upon the buyer.

The sources also say clarity is still missing whether rubber will be treated as an industrial input or an agriculture product.

Though the Government has stated that rubber will be treated as an industrial input and be taxed at four per cent in the VAT regime, there is a school of thought among a section of the rubber trade that in a dealer-to-dealer trade within the State, rubber can be viewed under the `any other item' nomenclature in the VAT rule and be taxed at 12.5 per cent.

"You can dispute rubber's nomenclature as an industrial input in this scenario and claim that it be taxed at 12.50 per cent instead of the four per cent. This anomaly has to be cleared," Mr N. Radhakrishnan, President of the Cochin Rubber Merchants Association said.

Though the prices are now showing a downward trend, a drastic drop is unlikely in the coming days thanks to the revival now seen in exports. The ISNR grade of rubber from India is in demand in international market as global prices are ruling at higher levels.

The Government gives a subsidy of Rs 2.50 for kg of ISNR for exports. The quota of 13,000 tonnes that is eligible for the subsidy is now almost getting over with the sudden increase in exports, the sources said.

Though the subsidy for sheet rubber is no longer available since the quota is now over, if prices fall sharply, exporters would be enthused to take order in view of the higher international prices, they pointed out.

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