The business body taxation rates of over 18 per cent were responsible for the stagnation in the processing levels of fruit and vegetables at around 2 per cent. The situation “not only acts a disincentive for investment in the sector but also adversely affects its competitiveness”, said an Assocham statement.
Government tax break
The announcement came as the Government announced that profits from the “processing, preserving and packaging of fruits or vegetables” would be exempt from tax for the first five tax years. The new regulation would also apply to new plants set up in the meat, poultry, marine and dairy industries.
The tax break was introduced a week after the Government singled out the low level of fruit and processing sectors as it unveiled proposals to double the size of the food processing industry by 2015. Food processing minister Shri Subodh Kant Sahai, blamed poor infrastructure.
“The low level of fruit and vegetable processing is due to non-availability of processable varieties of raw materials at right quantity and quality, seasonable nature of industry, lack of adequate post-harvest infrastructure such as lack of cold chain facilities, and transportation, proper storage facilities,” he said.
Prohibitive rates
But the commerce trade body cited prohibitive taxation rates on processed fruit and vegetables as a cause of the problem. Dr Swati Piramal, president of the trade association, said fruit and vegetables were liable to Central Sale Tax, VAT and local levies while unbranded food products were either exempt or taxed at concessional rates of around 4 per cent.
Piramal said the tax “anomaly” was directly responsible for the low percentage of these products that are processed. The result was waste and inefficient use of fruit and vegetables reaching R500bn (€7bn) a year, according to an Assocham estimates. A developed processing industry would help to reduce these wastages and raise farm income, it said in statement.
Assocham added the inequalities in tax were even more unreasonable as “branded products carry the brand owner’s assurances on quality and hygiene”. Consumers should not be forced to pay higher prices to obtain safer products, it said.
The body also called for a flat VAT rate for all types of food and an exemption from Service Tax in a range of areas including transport of goods.
“The policy of excluding processed food products from levy of Central Excise Duty, as dealt with in previous Budgets, needs to be progressed to cover all processed food products,” said Assocham. “This will actualize the organized food processing industry’s potential to generate rural employment, ensure fair prices for farmers, reduce wastages and spread the benefits of economic growth to rural areas.”