Calcutta, Mar 12: The West Bengal's multi-point sales tax regime is encouraging large-scale evasion of taxes and illegal movement of goods from other states by plastics manufacturing units, according to the Indian Plastics Federation's memorandum to the state government. West Bengal is the only state in the country to have a multipoint tax structure.The incidence of tax on the final consumer, according to the memorandum, is around 45 per cent in West Bengal, the highest in thes country. In Andhra Pradesh it is zero, in Kerala 21.3 per cent, in Tamil Nadu 25 per cent, in Karnataka 13 per cent, in Goa two per cent, in Maharashtra 17.4 per cent and in Gujarat the incidence is 14.4 per cent.
The federation stated in the memorandum that plastics goods from outside the state turned out cheaper than the local products and hence a big part of the sales tax went into the central sales tax kitty. According to the federation's projections, the sales tax collections can go up by 40 per cent if the structure is rationalised.
The memorandum raised several points which, it said, were responsible for the industry's stunted growth and hence lower revenue.For instance, in Maharashtra there is an eight per cent tax on plastics raw materials, while West Bengal imposes only five per cent. However, a manufacturer of plastics goods in Maharashtra is allowed to set off the tax fully. On the other hand, in West Bengal a manufacturer pays a concessional rate of three per cent.
Citing another case, the memorandum says: "Dairies are unable to place orders on local units due to the high costs related to high incidence of sales tax. Dairies in West Bengal, including Mother Dairy, cannot issue the West Bengal sales tax declaration forms under the West Bengal Sales Tax Act, 1994, as their end products are classified as under Schedule I and are exempt from payment of sales tax and therefore supplies made to them has to be treated as supplies to unregistered dealers. Whereas they are entitled to issue C forms under the Central Sales Tax Act, 1954, against payment at concessional rate of four per cent central sales tax."
Therefore, procuring their requirements from units outside the state was a more profitable option for the dairies and other exempted industries, it said. The situation is similar in case of state government departments. "The competitors from outside the state are charging four per cent central sales tax whereas local units have to charge four per cent plus 15 per cent surcharge on the tax adding up to 4.6 per cent which is too high keeping in mind the multi-point structure of the tax in the state."
The memorandum said that in case of new units in the small-scale sector the benefits of tax holidays were not much as the small units had to depend on resellers and dealers for sales. Due to the multi-point nature of the tax the ultimate price included a sizeable tax component, it said. In West Bengal, there is zero per cent sales tax on plastic bangles, combs, dot pens, refills and fountain pens. Plastic granules and powder have a five per cent duty on the first point. Finished goods of plastic foam, sheets of artificial and synthetic resin have a first-point sales tax of 15 per cent.
All other products have a multi-point tax structure varying from three to 15 per cent. There is a 15 per cent surcharge in all cases. The federation has suggested a single-point tax structure with sales tax being charged at the first point in all cases. The memorandum suggests that the taxes for most of the finished products be brought down to 3.5 per cent with sales tax for synthetic resin remaining at 15 per cent. Sanjay Budhia, managing director of the Patton Group, manufacturer of plastic water storage tanks, has, meanwhile, written to the commissioner of commercial taxes saying that the difference between the central sales tax of eight per cent at full rate and the state sales tax on tanks at 13.8 per cent has resulted in "clandestine movement of the product from other states to this state through unregistered dealers." He has further written that mushrooming unregistered dealers and the corrupt trade practices adopted by the registered dealers due to the difference in the central sales tax and WestBengal sales tax had led to erosion of revenue defeating the purpose of multi-point taxation.
With the state government going all out to promote downstream industries, sources have voiced apprehensions that the downstream investments may land outside West Bengal, in the neighbouring states. All eyes will be on the state finance minister when he presents the budget for next financial year.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
