Union Budget 2012-13 - Major concerns for food and hospitality segments
Saturday, March 10, 2012 08:00 IST
Irum Khan, Mumbai
With Union Budget 2012-13, scheduled for March 16, round the corner, the food & beverage, food processing, retail, and hotel and hospitality industries, already battling inflation- and recession-related challenges, are eagerly awaiting the announcements by the finance minister and looking for a respite.
In this regard, all of these industries have come up with a list of omissions and commissions that they are seeking from the finance minister. Here's a peek into the demands made by the different segments:
VAT
The All India Food Processors' Association (AIFPA) has written to the ministry of food processing industries (MoFPI) asking for rationalisation of VAT (Value-Added Tax) rates in the Budget 2012-13. It has asked the MoFPI to take its concerns to the empowered group of ministers of the finance committee.
"Introduction of VAT was a path-breaking initiative in the process of rationalisation of taxes. We recognise that levy of the VAT falls under the jurisdiction of the states. However, in the last one year or so some of the state governments have tinkered with the broad understanding on the rate of VAT applicable to goods and in the process certain anomalies have emerged that need to be corrected," said the AIFPA.
In this regard, it said that the VAT on all food products should be taxed at 4% throughout the country. It also asked a uniform VAT of 4% for packaged drinking water. The argument of the AIFPA is that packaged drinking water was a food item and thus the lowest VAT value should be applicable to it.
VAT of 4% is currently applicable to fruit juice and fruit juice-based drinks. Despite the states coming to an understanding that fruit juice and fruit juice-based drinks would fall under 4% VAT rate, some states have increased the VAT substantially.
Also, in a run-up to the proposed GST regime, many state governments have recently increased the rate of the VAT applicable on several food items like aerated water.
The rate of VAT has also been hiked on carbonated soft drinks in several places like Maharashtra, NCT (National Capital Territory of Delhi) and others. "This defies economic logic," the AIFPA said.
"Soya processed foods such as soya edible flour / flakes / grits, soya badi / chunks / granules / textured soya protein, soya lecithin, soya milk, tofu (paneer), soya nuts / papad may also be brought under zero rate of tax because the VAT on soya food products varies from 4% to 12.5% in various categories and in various states of India. VAT should not be more than 4% on all soya products," the Association demanded.
It further asked for uniform VAT rates across the states.
Priority Sector Lending: The processing industry is demanding the inclusion of all advances to the agriculture & food processing industry, across the value chain under the category of direct agri Priority Sector Lending (PSL), without any limitation on the size of investment in plant and machinery.
This demand deserves some credit as the RBI has qualified lending to food and agro-based processing sector, under Indirect Finance to Agriculture, for units with investments in plant and machinery up to Rs 10 crore.
No GST
GST (Goods and Services tax) on processed food should be NIL, the industry has demanded. If the demand is not granted then the prices are likely to escalate leading to inflation, fears the industry.
It has asked the government to keeping the F&V processing industry under a special GST rate of 0% in line with Cenvat structure.
Fruits and vegetables
The association has asked the government to include agriculture produce in processed food products.
It wants exemption of fruits, vegetables and perishables from the APMC Act. This is to allow all farmers the freedom to sell directly to food processing companies / aggregators / processors, etc. in addition to selling through government or private mandis.
It wants the government to uniformly classify all "Processed Fruits and Vegetables" across the Centre and the states in lines with Cenvat structure.
It also seeks abolishment of state octroi /cess being charged in some states for the entry of goods.
Mid-Day Meals
The food processing sector has asked the government to allow its participation in the Mid-Day Meal scheme. "There is an urgent need to include processed food products in the Mid-Day Meal scheme because in the present scheme of things high wastage and pilferage happen mostly because rice and wheat are sold in the open market and the end benefit is not going to the beneficiaries. With processed foods this problem can be avoided and beneficiaries would be able to get nutritious wholesome food specially designed for the end-users and in hygienic manner," said the AIFPA.
Venture Fund to boost entrepreneurship, more NIFTEMS across India, Foreign Direct Investment in multi-brand retail and permission for corporate farming are just among the plethora of demands by the AIFPA.
Retail
The retailers have asked the government to revisit its decision of allowing foreign direct investment (FDI) in retail, at least for the non-food segment.
In its list of recommendations, the Retailers Association of India (RAI), said, "Considering the recent political developments post the announcement of allowing FDI in multi-brand retail, and recognising that the highest opposition for the proposed FDI policy seems to be on the food retail sector (largely due to its contemplative impact on local kirana shops), we at RAI would like to request the government to consider the option of at least opening up the other sectors (non-food) to FDI."
The retail industry also has repeated its demand for recognition of retail as an industry and assigning of a separate ministry for it. It said that the growth of retail sector could benefit the conventional retail trade, the government's exchequer, consumers and farmers/producers. A ministry / nodal minister to look after the interests of the retail sector shall help the sector flourish and get a facelift, the RAI said.
This will also enable better financial processes due to benchmarking and enable prudent practices in retail. Retail will also become eligible for all support and incentives as applicable to other industries.
On the provision of the Food and Safety Standards Act designed by the Food Safety and Standards Authority of India (FSSAI), the RAI said that the Act in its present form, also included the retailers and it would be practically impossible for the retailer to comply with the existing provisions.
For the retailers, there needed to be simple and clear regulations with the basic intent to protect the food safety and standards.
While the retailer would take utmost care to provide a hygienic environment for the food stuff inside the store, the construction of the store and its surroundings was not in the control of the retailer, it said.
Restaurant
Unlike the hotel industry, the restaurant segment has been unable to unite to present itself as one industry. Thus, it calls itself an ignored sector by the government.
This year again it has asked for tax holidays and better and rational tax structure which it believes will be a tremendous boost for the sector. "Restaurants should be treated as an infrastructure sector and accorded the accompanying benefits associated thereof," said Vyoum Ghai, honorary secretary, National Restaurant Association of India (NRAI), and the promoter of Panchshila Rendezvous.
He adds, "We strongly request the finance minister to remove the service tax on the rentals of the restaurant properties as the restaurant industry is already highly taxed plus the high and soaring rentals, high food inflation in the country are already making a viable existence incredibly difficult for the restaurateurs."
S M Shervani, president, Hotel & Restaurant Association of Northern India (HRANI) and managing director, Shervani Hospitalities Ltd, says the government should look at allowing duty-free concession for standalone restaurants. He also feels the government should lower the interest rate for ingredients and equipment manufacturers investing up to one to two crore. Criticising the discord between the Centre and state in implementing GST, Shervani says at a uniform rate of 10% GST will help the industry. He opines that service tax should be scrapped, "When we pay sales tax on one hand why is that we also need to pay a service tax? Isn't it ridiculous?"
Hospitality
The hotel industry has had this persistent complaint of the government not paying heed to its demands. Resultantly, it repeats the same list of demands every year. This year again, the hotel industry has made its concerns, about government not giving sufficient attention to the industry, vocal. "The industry has grown rapidly in the last 10 years. However, the government has very little role in it. The progress was only driven by the entrepreneurs and all those associated with the industry," said Shervani.
As for the Budget, Sanjay Vazirani, managing director, Foodlink Services (India) Pvt. Ltd, feels the Budget for 2012-2013 should be made more user-friendly.
VAT is again a concern for this segment. Vazirani says that due to high VAT and additional service tax, people think before eating out as dining out has become more expensive. The taxation structure affecting the consumer of the hospitality sector should be reviewed. "We expect that the hotel industry would be given higher depreciation allowances as the industry has to make heavy investments in renovation and upgrade. The industry demands massive capital investment."
He adds, "Last year's Budget has shown a negative impact on Indian hotels. The increase in service tax affected Indian hotels at large, which led to a decrease in growth of hotel industry. Let's hope this year the situation improves with the introduction of low VAT and less additional service tax which will once again result in the booming of hospitality industry."
SOURCE
Saturday, March 10, 2012 08:00 IST
Irum Khan, Mumbai
With Union Budget 2012-13, scheduled for March 16, round the corner, the food & beverage, food processing, retail, and hotel and hospitality industries, already battling inflation- and recession-related challenges, are eagerly awaiting the announcements by the finance minister and looking for a respite. In this regard, all of these industries have come up with a list of omissions and commissions that they are seeking from the finance minister. Here's a peek into the demands made by the different segments:
VAT
The All India Food Processors' Association (AIFPA) has written to the ministry of food processing industries (MoFPI) asking for rationalisation of VAT (Value-Added Tax) rates in the Budget 2012-13. It has asked the MoFPI to take its concerns to the empowered group of ministers of the finance committee.
"Introduction of VAT was a path-breaking initiative in the process of rationalisation of taxes. We recognise that levy of the VAT falls under the jurisdiction of the states. However, in the last one year or so some of the state governments have tinkered with the broad understanding on the rate of VAT applicable to goods and in the process certain anomalies have emerged that need to be corrected," said the AIFPA.
In this regard, it said that the VAT on all food products should be taxed at 4% throughout the country. It also asked a uniform VAT of 4% for packaged drinking water. The argument of the AIFPA is that packaged drinking water was a food item and thus the lowest VAT value should be applicable to it.
VAT of 4% is currently applicable to fruit juice and fruit juice-based drinks. Despite the states coming to an understanding that fruit juice and fruit juice-based drinks would fall under 4% VAT rate, some states have increased the VAT substantially.
Also, in a run-up to the proposed GST regime, many state governments have recently increased the rate of the VAT applicable on several food items like aerated water.
The rate of VAT has also been hiked on carbonated soft drinks in several places like Maharashtra, NCT (National Capital Territory of Delhi) and others. "This defies economic logic," the AIFPA said.
"Soya processed foods such as soya edible flour / flakes / grits, soya badi / chunks / granules / textured soya protein, soya lecithin, soya milk, tofu (paneer), soya nuts / papad may also be brought under zero rate of tax because the VAT on soya food products varies from 4% to 12.5% in various categories and in various states of India. VAT should not be more than 4% on all soya products," the Association demanded.
It further asked for uniform VAT rates across the states.
Priority Sector Lending: The processing industry is demanding the inclusion of all advances to the agriculture & food processing industry, across the value chain under the category of direct agri Priority Sector Lending (PSL), without any limitation on the size of investment in plant and machinery.
This demand deserves some credit as the RBI has qualified lending to food and agro-based processing sector, under Indirect Finance to Agriculture, for units with investments in plant and machinery up to Rs 10 crore.
No GST
GST (Goods and Services tax) on processed food should be NIL, the industry has demanded. If the demand is not granted then the prices are likely to escalate leading to inflation, fears the industry.
It has asked the government to keeping the F&V processing industry under a special GST rate of 0% in line with Cenvat structure.
Fruits and vegetables
The association has asked the government to include agriculture produce in processed food products.
It wants exemption of fruits, vegetables and perishables from the APMC Act. This is to allow all farmers the freedom to sell directly to food processing companies / aggregators / processors, etc. in addition to selling through government or private mandis.
It wants the government to uniformly classify all "Processed Fruits and Vegetables" across the Centre and the states in lines with Cenvat structure.
It also seeks abolishment of state octroi /cess being charged in some states for the entry of goods.
Mid-Day Meals
The food processing sector has asked the government to allow its participation in the Mid-Day Meal scheme. "There is an urgent need to include processed food products in the Mid-Day Meal scheme because in the present scheme of things high wastage and pilferage happen mostly because rice and wheat are sold in the open market and the end benefit is not going to the beneficiaries. With processed foods this problem can be avoided and beneficiaries would be able to get nutritious wholesome food specially designed for the end-users and in hygienic manner," said the AIFPA.
Venture Fund to boost entrepreneurship, more NIFTEMS across India, Foreign Direct Investment in multi-brand retail and permission for corporate farming are just among the plethora of demands by the AIFPA.
Retail
The retailers have asked the government to revisit its decision of allowing foreign direct investment (FDI) in retail, at least for the non-food segment.
In its list of recommendations, the Retailers Association of India (RAI), said, "Considering the recent political developments post the announcement of allowing FDI in multi-brand retail, and recognising that the highest opposition for the proposed FDI policy seems to be on the food retail sector (largely due to its contemplative impact on local kirana shops), we at RAI would like to request the government to consider the option of at least opening up the other sectors (non-food) to FDI."
The retail industry also has repeated its demand for recognition of retail as an industry and assigning of a separate ministry for it. It said that the growth of retail sector could benefit the conventional retail trade, the government's exchequer, consumers and farmers/producers. A ministry / nodal minister to look after the interests of the retail sector shall help the sector flourish and get a facelift, the RAI said.
This will also enable better financial processes due to benchmarking and enable prudent practices in retail. Retail will also become eligible for all support and incentives as applicable to other industries.
On the provision of the Food and Safety Standards Act designed by the Food Safety and Standards Authority of India (FSSAI), the RAI said that the Act in its present form, also included the retailers and it would be practically impossible for the retailer to comply with the existing provisions.
For the retailers, there needed to be simple and clear regulations with the basic intent to protect the food safety and standards.
While the retailer would take utmost care to provide a hygienic environment for the food stuff inside the store, the construction of the store and its surroundings was not in the control of the retailer, it said.
Restaurant
Unlike the hotel industry, the restaurant segment has been unable to unite to present itself as one industry. Thus, it calls itself an ignored sector by the government.
This year again it has asked for tax holidays and better and rational tax structure which it believes will be a tremendous boost for the sector. "Restaurants should be treated as an infrastructure sector and accorded the accompanying benefits associated thereof," said Vyoum Ghai, honorary secretary, National Restaurant Association of India (NRAI), and the promoter of Panchshila Rendezvous.
He adds, "We strongly request the finance minister to remove the service tax on the rentals of the restaurant properties as the restaurant industry is already highly taxed plus the high and soaring rentals, high food inflation in the country are already making a viable existence incredibly difficult for the restaurateurs."
S M Shervani, president, Hotel & Restaurant Association of Northern India (HRANI) and managing director, Shervani Hospitalities Ltd, says the government should look at allowing duty-free concession for standalone restaurants. He also feels the government should lower the interest rate for ingredients and equipment manufacturers investing up to one to two crore. Criticising the discord between the Centre and state in implementing GST, Shervani says at a uniform rate of 10% GST will help the industry. He opines that service tax should be scrapped, "When we pay sales tax on one hand why is that we also need to pay a service tax? Isn't it ridiculous?"
Hospitality
The hotel industry has had this persistent complaint of the government not paying heed to its demands. Resultantly, it repeats the same list of demands every year. This year again, the hotel industry has made its concerns, about government not giving sufficient attention to the industry, vocal. "The industry has grown rapidly in the last 10 years. However, the government has very little role in it. The progress was only driven by the entrepreneurs and all those associated with the industry," said Shervani.
As for the Budget, Sanjay Vazirani, managing director, Foodlink Services (India) Pvt. Ltd, feels the Budget for 2012-2013 should be made more user-friendly.
VAT is again a concern for this segment. Vazirani says that due to high VAT and additional service tax, people think before eating out as dining out has become more expensive. The taxation structure affecting the consumer of the hospitality sector should be reviewed. "We expect that the hotel industry would be given higher depreciation allowances as the industry has to make heavy investments in renovation and upgrade. The industry demands massive capital investment."
He adds, "Last year's Budget has shown a negative impact on Indian hotels. The increase in service tax affected Indian hotels at large, which led to a decrease in growth of hotel industry. Let's hope this year the situation improves with the introduction of low VAT and less additional service tax which will once again result in the booming of hospitality industry."
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