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Tuesday, May 13, 2003

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`Biscuits will cost more post-VAT'

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BISCUITS are a poor man's bread, but though the proposed VAT on bread is 4 per cent, biscuits are faced with a VAT imposition of 12.5 percent, lament biscuit manufacturers.

Not only will the proposed move eat into the revenues of the estimated Rs 5,000 crore biscuit industry, it will also push up the retail price of biscuits by about 3 per cent, according to Mr S.S. Shivrain, President, Federation of Biscuit Manufacturers of India (FBMI).

The industry forum has urged the Centre to bring down the proposed VAT rate to 4 per cent, on the same level as bread.

Biscuits are currently burdened with a sales tax of 8 per cent, as opposed to other processed food items that have zero tax, points out Mr Naveen Khanna, a representative of FBMI.

The industry forum comprises regional and national players, including the biscuit big-daddies such as Britannia, Parle and Priya.

With a respectable growth of 9 per cent, the industry forum contends that it could touch a growth rate of 15 per cent, if the VAT rate was brought down. But a 12.5 per cent VAT would bring down the industry's growth rate to about 5 per cent and this would make it unviable for manufacturers in the segment, they opine.

According to Mr B.P. Agarwala, Vice-President of the Federation, biscuits are clubbed in the category of products such as jams, jellies and ketchup. But biscuits are a mass-consumption item, with biscuits priced from Re1 upwards.

Besides the increase in the price of biscuits, if a VAT-rate of 12.5 per cent was imposed, would also impact small-scale manufacturers operating in the segment, who would be hit, he said. About 60 per cent of the estimated Rs 5,000-crore biscuit industry is organised. The imposition of high VAT could force manufacturers to cut corners and compromise on quality, they added.

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