Biscuit companies feel dunked by GST

As the goods and services tax (GST) Council gets down to giving final touches to various legislations for its implementation and fitting different items into various tax rate brackets, Rs37,000-crore biscuit industry has escalated its efforts to lobby for tax exemption for biscuits priced below Rs100 per kilogram (kg), and not club all varieties under a single tax code.

Currently, biscuit makers do not pay any exercise duty on products priced below Rs100 per kg but are charged value added tax (VAT) at 12%-12.5%. The effective rate of tax on lower priced biscuits is around 8% today.

Haresh Doshi, president, Biscuit Manufacturers Welfare Association, said; "what we are saying is please exempt this category (cheap biscuits) from taxes and please tax those variety (above Rs100 per kg) which are going to consumers who can afford to pay tax. We don't make more than 2%-3% margins on them (biscuits priced below Rs100 per kg). We are not asking for subsidies but at least don't tax it. Today, you (the government) have some lenient view on the low-priced biscuit, we are asking you to continue it".

Today, low-priced brands like Parle G, Marie and others constitute 30%-35% or around Rs13,000-14,000 crore of the total revenues of the biscuit industry, which will contribute around Rs3,200 crore to the government exchequer in the current fiscal.

Doshi said the signals emanating from the finance ministry or the North Block indicate that the government was looking at fixing a common GST rate of 12% for biscuits. He said this would put the burden on the poorer segment of the consumers and would amount to reverse cross-subsidisation, where poor buyers would pay for the rich buyers.

"If the government wants the private sector to run a cross-subsidy business in the interest of poor, say it so. Tell us that we will supply (biscuits) at subsidised rates. You (government) cannot tell us that we rob the rich and then feed the poor and we don't even get to be the knight in shining armour for the poor," said the trade body's spokesperson.

According to him, during natural calamities like Tsunami, floods and others, district collectors force biscuit producers to sell their products to the government for their relief programme.

Doshi said the biscuit lobby outfit had put in petitions with over 300 members of Parliament (MP) and state finance ministers and chief ministers to push their demand for splitting the tax for biscuits into two rates.

He said after extensive lobbying in 2007, former finance minister P Chidambaram had agreed to waive off excise on cheap biscuit brands.

M S Mani, senior director of Deloitte said while there was "economic justification" in the demand of the biscuit industry, the challenge for the government would be to administratively enforce it.

"It actually makes a lot of sense and I think they (biscuit producers) are being genuine about it. This is not a case of people who do not want to continue paying taxes. From economic justification point of view they are definitely right in terms of saying that a product which is consumed by people who are very poor there should be an exemption and there is no point in loading that product further with tax," he said.

According to him, 40% of the biscuits sold in India are below Rs5 per packet, which are required by poor people. He, however, said if the government relented to the industry's request then similar demands would be raised for other products like shampoo, which are also sold in sachet, and footwear, which are priced differently for different economic sections.