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Consumers getting rubber cheaper than last year
VAT comes to rescue despite prices ruling at record high

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FLYING HIGH: A worker drying RSS-1 grade rubber sheets at the smokehouse of a rubber producers' society in Muvattupuzha, some 45 km from Kochi. Rubber prices are currently ruling at a record high of Rs 70 a kg, raising hopes of a good time for growers and producers. K.K. Mustafah
FLYING HIGH: A worker drying RSS-1 grade rubber sheets at the smokehouse of a rubber producers' society in Muvattupuzha, some 45 km from Kochi. Rubber prices are currently ruling at a record high of Rs 70 a kg, raising hopes of a good time for growers and producers. K.K. Mustafah

Vipin V. Nair

Kochi, July 26

NATURAL rubber prices may have hit its highest ever price in the domestic market with the RSS-4 grade touching the Rs 70 a kg mark on Tuesday, but consumers such as tyre makers still get the commodity cheaper than last year.

The reason: Introduction of value-added tax (VAT) in Kerala from this financial year.

From April 1 onwards, the four per cent VAT has replaced the previous 12.65 per cent purchase tax on rubber in Kerala.

The State produces over 90 per cent of the country's natural rubber.

Under the present tax structure, rubber at Rs 70 a kg would attract a VAT of Rs 2.80, a cess of Rs 1.50 a kg and surcharge of four per cent on the cess.

At this rate, one kg of rubber would cost Rs 74.36 for a buyer. (This price is not the landed cost as it does not factor in the freight charges).

As compared with this rate, last year's highest price of Rs 67.50 a kg had attracted a purchase tax of Rs 8.53, a cess of Rs 1.50 and a 11 per cent surcharge on the cess that works out to Rs 1.66.

This took the price up to Rs 77.69 a kg.

This means that even at today's record price of Rs 70 a kg, consumers like tyre companies get rubber cheaper by Rs 3.33 a kg compared with the last year's highest price. In other words, the final cost of a kg of rubber today is practically the same as what a consumer would have paid at Rs 64.50 a kg a year ago.

Tyre industry is of the view that a price increase of Rs 10 on a kk of rubber would translate to an additional Rs 400 crore expenditure on raw material a year.

The lower tax regime has cushioned the impact of the present price flare to a great extent, industry sources said.

At the time of switching to VAT, it was estimated that the State would lose over Rs 100 crore on account of the lower tax on rubber.

On the other hand, the VAT has completely eliminated the problem of inter-State smuggling of rubber.

Earlier, the higher purchase tax prevailed in the State had induced a great deal of rubber smuggling into neighbouring states such as Tamil Nadu and Karnataka.

(This article was published in the Business Line print edition dated July 27, 2005)
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