The Hindu Business Line : Bengal's footwear sector seeks full VAT exemption

Footwear industry in West Bengal, fast becoming uncompetitive (particularly the low-priced common man's segment) because of large tax exemptions on such items in States such as Delhi and Madhya Pradesh, has sought a level-field to keep vendor sourcing in the State on an even keel.

Seeking full VAT exemption on footwear priced up to Rs 300 per pair, with MRP indelibly marked on the product, industry associations in the State now fear that some 3 lakh skilled and unskilled labourers (working with karigars) engaged in this SSI sector may be wiped out, if local sourcing starts shrinking in a big way.

It is felt that footwear should be brought under MRP basis of taxation instead of the current practice of classifying it on the basis of inputs, a practice which many manufacturers believe can lead to substantial revenue leakage for the Government.

Industry in Bengal has sought cut in VAT rate from 12.5 per cent to 4.5 per cent on footwear with MRP exceeding Rs 300 per pair, but below Rs 750 with MRP indelibly marked on the product.

MRP marking or embossing on the product, it is pointed out, would ensure zero revenue leakage. It is learnt that the same provision has also been introduced in Central Excise Act and Delhi State VAT Act.

According to some industry players, even if a slab-wise VAT exemption was not possible, the State commercial taxes department may bring the entire footwear sector under Schedule C of the Bengal VAT Act.

Admitting that trade was slowly shifting to other parts of the country to avail such tax benefits, leading city-based footwear manufacturers confirmed to Business Line here on Friday that purchases from vendors in Delhi and Agra have sharply increased in the first six months of the current fiscal.

According to one established manufacturer, who was sourcing exclusively from within the State, his own purchases from outstation vendors between March and August this year have increased substantially, admittedly at the expense of the local vendors. Another manufacturer has already set up a regional footwear distribution centre in Delhi on the basis of large outsourcing from low tax States.

In Bengal, footwear other than chappals and sandals made exclusively of plastic (a huge shift is now taking place in rural areas from Hawai chappals to plastic ones), attract VAT at 12.5 per cent, whereas the rates under the erstwhile WBST schedules was only 8 per cent on single point basis.