AIFPA Demands Tax Exemptions and Fiscal Incentives for FP in Budget 2012-13.

The All India Food Processors' Association (AIFPA) has written to Dr U Venkateswarlu, joint secretary, ministry of food processing industries (MoFPI), giving details on a tax structure that it recommends for food processing industries in the upcoming Budget 2012-13.

This was in response to the letter (Ref. No. 6-7/2011- on taxation dated August 3, 2011) earlier written by the joint secretary inviting suggestions from the industry for the Budget proposal 2012-13, which would be subsequently forwarded to the finance committee for review.

The AIFPA has collected opinions from its members on the needs of the industry and presented the same to the ministry.
The suggestions include:
Income tax deduction:
a) Section 80-IA of Income Tax Act, 1961 (ITA 1961)
The Association said that section 80-IA of IT Act talks about tax deduction on the profit deriving from the business of processing, preservation and packaging of fruits and vegetables. However, the clause is only imposed on the new units and not on the existing units. The AIFPA has suggested making deduction applicable to the existing units also.

Further, it said that the definition of food processing needed to be widened to include all processed foods such as ready-to-cook mixes, ready-to-eat foods, soft-drink concentrate, all fruits and vegetable products and other miscellaneous products.

Another demand from the Association was to extend income tax benefits to those food processing units which generated employment.

As food processing industry was an employment generating industry, the AIFPA asked for additional schemes to the units, which increased its human resource employment year-on-year.

Further, "Fresh capital injection in machinery and equipment used for food processing and packaging should be given, including accelerated depreciation to support newer technologies for increasing production and better quality," the Association said.

Accelerated depreciation methods are popular for writing-off equipment that might be replaced before the end of its useful life since the equipment might be obsolete.

The AIFPA also recommended that the dairy industry should be given the same benefits under 80IA.

a) Exemption on indirect tax:
The AIFPA asked for an exemption of excise duty on indigenous food processing machinery and customs duty on imported food processing machinery.

i. It said that the excise duty should be exempted for the food processing machinery made in India as the locally available equipment, plant and machinery were expensive due to high central excise tax. Therefore, food machinery was generally imported at a very high cost.

"If food processing machinery was imported, the import duty came to 21-30%. The import duty may be exempted. Similarly, excise duty also may be exempted for all the food processing machinery made in India," said the AIFPA.

a) Exemption of excise duty on all processed food products:

i. "Fruit and vegetable products should also be exempted from the levy of excise duty. The move to increase excise duty will subvert the development of the fruit and vegetable processing industry by reversing the build up in the momentum. Since the industry has a strong backward linkage with agriculture, it will also impact agriculture negatively," the AIFPA said.

ii. This meant that all processed fruit and vegetable products should be treated at par with fresh produce.
In the last Budget, excise of one per cent without CENVAT (Central Value Added Tax) and five per cent with CENVAT was announced, which was counter-productive to the growth of the processed fruits & vegetable products. This was required to be reverted back to "Nil" as earlier, the Association mentioned.

Further, excise duty on all the packaging materials used for processed foods should be exempted.

b) Exemption of excise duty on soya products:

The AIFPA said that the Government of India was charging excise duty at 10.3% on soya products manufactured from soybean. For the development and promotion of the soya food products such as soya lecithin liquid, lecithin powder, phosphatidyl choline and soya proteins concentrate exemption from levy of excise duty was demanded as food processors had not been able to utilise the potential of soya food products to improve the health of the people because of its "non-priority" status in the Central government schemes.

c) Reduction of excise duty on the packaged drinking water:

i. The AIFPA opined that the packaged drinking water was a common man's product and accordingly should be put in the NIL category for excise exemption. This meant zero excise duty on packaged drinking water.

ii. Currently the excise duty levied on packaged drinking water was around 10%. However, if the government is not able to remove the excise duty completely, it may look at reducing the excise duty in a calibrated manner and in the first stage excise duty may be brought down to four per cent and taken to zero duty next year.

d) Lower excise duty for lower price units:

The challenge for the packaged foods industry is to make its small unit packs affordable at the lowest economic price point in order to encourage trials and mass consumption. The AIFPA suggested that packaged foods bearing the MRP (Maximum Retail Price) of up to Rs 10 should be exempted from excise (currently biscuits in packaged form, packed per kg, and with retail price not exceeding Rs100 are exempted from excise).

e) Increase in abatement for excise base:

The abatement given for excise calculation for packaged goods does not adequately consider the level of post-manufacturing cost incurred by food & beverage companies.

Typically, the post-manufacturing expenses (including margins to trade and retail) accounted for much more than the current abatement of 30% of the retail price. So across food and beverage chain abatement should be made 40%.

Source : fnbnews.com