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India:VAT effect : Leather footwear up by 10% |
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2005-4-5
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The VAT effects have started seeping in the mind of the producers, marketers and consumers of the leather and footwear industries.
With the implementation of Value Added Tax (VAT) from April 1, 2005, leather goods and footwear industry will see a steep 10 percent rise in prices of its products across 19 Indian states, which have decided to implement the scheme.
Commenting on VAT, Kuruvilla Kuriakose, director (finance), Mirza Tanners said, “Leather footwear is taxed at the rate of 12.5 per cent whereas a comparable product category like garments is taxed at 4 per cent. This discrimination would only benefit the unorganised sector.”
The Tata group, Liberty Footwear and Mirza tanners are among the largest players in the industry. Already the leather industry is under pressure due to excise duty, as leather goods attract a 16 per cent excise duty unlike textiles, which is duty free.
Facing 10 percent increase for the branded sector, according to Kuriakose, will force the consumers to buy cheaper products from the unorganized sector.
Explaining further he said, “Several players would tamper with the pricing and sell through smaller retailers who don’t come under the VAT system. In such cases, both the consumer and the government stand to lose. Moreover, the first point sales tax on footwear is eight per cent at present and with the implementation of VAT the retail price would go up by 10 per cent,” he added.
The Rs 3,000-crore leather and footwear industry will face a loss between Rs 250-300 crore in margins annually due to the VAT scheme.
Another major issue is that Uttar Pradesh alongwith Gujarat and other states have not gone for VAT scheme, with companies like Mirza Tanners getting no input credit.
In a major representation, the leather industry has urged the finance minister to bring the tax rates at par with the textile industry.
“There should be a parity in terms of taxation as the government classifies both textiles and footwear in the same group,” he concluded. |
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