Our Bureau

Mumbai, March 1

THE Union Government's commitment to the implementation of value-added tax (VAT), the reduction in corporate tax and a roadmap for the agricultural sector augurs well for corporatesand, in particular, the fast-moving consumer goods (FMCG) industry.

The consumer goods industry, faced with rising input costs, is looking towards the implementation of VAT as an encouraging measure. "The resolve to implement VAT, as pronounced by the Finance Minister, is most encouraging. The company believes that this will be implemented by all State Governments,'' Hindustan Lever Limited (HLL), the country's largest consumer goods company, said in a statement.

The transparency in the tax system, an outcome of VAT, is expected to directly contribute to improved market shares for most FMCG companies, as tax evading units would be eliminated in due course of time. "Instead of double taxation with cascading effects, a set-off will be given for input tax as well as tax paid on previous purchases," said Mr Dinesh Shahra, Managing Director, Ruchi Soya industries Limited.

The initiatives providing benefits to the agricultural and rural sectors should help agri-business companies. Mr Bharat Patel, Chairman, Procter and Gamble Hygiene and Health Care Ltd, also believes that thrust on infrastructure, agriculture, employment and development in the rural sector will fuel the growth of the economy and that of the FMCG sector.

"The decision to draw up a roadmap of agricultural diversification will surely help in augmenting the oilseeds production and taking India a step ahead towards becoming self-reliant in edible oils," Mr Shahra said.

According to Mr Percy Siganporia, Managing Director, Tata Tea, the thrust of initiatives to promote agriculture, infrastructure and the rural economy can boost tea consumption.

According to Mr Hoshedar Press, Executive Director, Godrej Consumer Products Limited, the reduction in the maximum rate of customs duty will help the soap industry, as palm oil is imported. Thus, costs will fall and consumers will benefit, he said.

For the paints industry, a quasi-FMCG sector, the Finance Ministry's decision to continue tax exemption on housing loans is advantageous. More importantly, there is going to be some benefit from the reduction of corporate tax, said Mr H. M. Bharuka, Managing Director, Goodlass Nerolac.But the marginal reduction in the corporate tax rate, although beneficial, may be neutralised by an additional tax on fringe benefits and lower depreciation allowances, HLL said.

For Tata Chemicals, the service tax on pipeline transport of goods could result in higher prices for the end-users. "If soda ash is also subjected to a lower customs duty of 15 per cent, then the domestic manufacturers could be adversely affected," said Mr P. K. Ghose, Chief Financial Officer, Tata Chemicals.

(This article was published in the Business Line print edition dated March 2, 2005)
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