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Budget Special: Clarity on VAT and lower peak Customs duty top wishlist of consumer goods players

Budget Special: Clarity on VAT and lower peak Customs duty top wishlist of consumer goods players

Author | Malini Menon & Gokul Krishnamurthy | Friday, Feb 25,2005 8:44 AM

<b>Budget Special:</b> Clarity on VAT and lower peak Customs duty top wishlist of consumer goods players

In the domain of marketing, Consumer Durables and FMCGs invariably generate a lot of excitement. This is a market dominated by brands, where the likes of Samsung, Philips, LG, Electrolux, Whirlpool, HLL, P&G, Dabur, Videocon, the automobile companies, amongst others, generate huge decibel levels. But they are all affected by Customs duty, taxes, Excise, Sales Tax and now the proposed VAT, and of course input costs. This is a market that is all about price points and the consumer. With Budget 2005 round the corner, exchange4media spoke to some key industry players to find out their wishlist.

David Friedman, MD and President, Ford India

Over the last couple of years the auto industry has proven to be a strong driver of growth for the manufacturing sector. The industry expects that encouraging the auto sector's continual development would be an integral part of the government's reform and growth agenda. In the forthcoming Budget, we look forward to progressive policies like rationalization of taxes, labour reforms and facilitation of export programmes, all of which will promote growth.

Amit Burman, CEO, Dabur Foods

My wishlist is that there be no Excise duty for next year. VAT rate is expected at 12.5% for our sector, but we want it to be the same as that of the pharma industry, which is 4 per cent. And in foods, I hope there would be foreign investments, transport subsidies and the Budget gives better facilities for retail.

Ravinder Zutshi, Director - Sales, Samsung India Electronics

The Budget should focus on improving the state of infrastructure in India, especially roads and ports. This would help in improving logistical efficiency and time to market for consumer durable products. Excise duty on air-conditioners stand at 24% whereas the rest of the consumer durable items are levied excise at 16%. Air-conditioners are no longer a luxury item but an essential part of people's homes. The excise duty on ACs should be brought down on a par with other consumer durable items.

The Indo-Thailand FTA had a major impact on companies manufacturing durables in India. As per this FTA, the Customs duty on finished consumer durable products imported from Thailand is 12.5 per cent. However, their inputs attract Customs duty of 20 per cent! This can discourage domestic manufacturing in India. To remedy this situation, Customs duty on inputs should not be higher than that on finished products. Also, the excise duty on durable should be pegged at less than or at the same level as the Customs duty as per FTA. This is necessary to ensure a level playing field and competitive domestic manufacturing.

Hoshedar K Press, Executive Director and President, Godrej Consumer Products

The categories are finally showing signs of growth. The Budget should build on this with initiatives that will boost demand and consumption via lower costs and more disposable income with consumers. The reduced prices of detergents and shampoos -- thanks to a price war -- have resulted in good growth for the categories, showing that lower prices result in growth. There is scope to reduce Excise and Import duties to harmonize with the rest of the world.

The buzz is over the implications of VAT's introduction. Marketers are worried that improper transition could lead to disruption of business especially in year ending. The new VAT rate could result in increase in prices of categories that are today below 12.5%, like soaps and detergents. Toiletries and other luxury items could benefit as they have high tax rates at present.

Marketers are watching the Retail FDI area with interest as that could change the rules of the game if international players come into the country.

Ajay Kapila, VP-Sales and Marketing, Electrolux India

The VAT situation is very confusing at present. The government should come out with clear guidelines that are uniform for the whole country. We definitely want a shift from the Sales Tax regime to VAT.

At the same time, peak Customs duty should be reduced from the current 20% to a level of 15%. This will help lower input costs as many components are imported by manufacturers in India.

The Kelkar Committee recommendation that the sum of all taxes and duties should not exceed 20-25% of a product's final price should be implemented expeditiously. This is the norm internationally. At present, in India, taxes constitute 45-50% of the product price. The Budget should also rationalize the duty structure because often components attract a higher duty than CBUs (completely built units).

Satish Kumar, MD, Henkel India

There may not be a free hand for the FM to bring in major policy changes because he would have to go by the CMP. Some of the things we can expect are reduction in corporate tax by 5 per cent and an increase in the minimum income level for taxation. A cut in customs duty by 5 per cent, i.e., from the existing 20 per cent to 15 per cent, is also likely.

We do not expect anything positive for the FMCG sector, though there may not be any major negative impact. This sector is growing after two years of stagnation. Our wishlist for the Budget to fuel the FMCG sector’s growth would include further rationalization of excise, reduction and increased abatements. In case VAT is introduced, the rate should not be more than 10 per cent against 12.5 per cent indicated now. Doing away with CST, octroi and other entry taxes would also be welcome.

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