Top tea industry sources said that this will have a negative impact on export of packaged tea and act as a deterrent to value-addition, the key to succesful growth of the industry.

The increase in excise duties will lead to consumers paying higher prices. The prices of packet tea are already ruling at high levels and a further increase will definetly have a negative impact on the industry.

The industry's contention althroughout was a thrust on value-addition in order to achieve better price realisations from tea. "This move will have negative implications on the industry", said an Indian Tea Association official. Moreover, none of the otherdevelopmental issues like implementation of 33 AB of the Income Tax Bill were taken care of", he added.

The Federation of All India Tea Traders Association (Faitta) has called this eight per cent imposition of excise duty as an unjustified move especially in light of the critical situation being faced by hundreds of running small scale industries in various parts of India.

In a press statement issued by Faitta, "The packet tea prices have already seen an almost 75 per cent increase in prices during the year 1997-98 and almost all tea companies are facing closure as only widely advertised packet tea companies may survive. The finance minister should give a second thought and try to provide justice".

The tea industry's expectations from the budget centred around its complicated tax system which it claims to have had its negative effects on the overall growth of the industry for so long.

The restoration of 33AB of the Income Tax Bill which allows it to be taxed only after deletion of 20 per cent of thepre-tax profits, was one of the major demands of the industry.

The incorporation of Section 33AB along with an additional 20 per cent tax benefit would translate into a 16 per cent cut in taxes in the present budget. The deletion of 33AB from the IT Bill late last year had meant an additional burden of eight per cent for tea companies taking into account the corporate income tax and respective state agricultural taxes.

As per Section 8 of Income-Tax rules, the tea industry has a complicated dual taxation structure wherein 40 per cent is subject to corporate income tax (CIT) and the remaining 60 per cent is taxed by state governments under their respective agricultural income tax acts.

The industry's present demand for imposition of taxes only after a 40 per cent deduction from pre-tax profits would essentially mean a reduction by almost 16.4 per cent from the present 41 per cent taking into account both CIT and agricultural tax.

A 35 per cent CIT when imposed after deduction of 40 per cent of thepre-tax profit works out to be Rs 8.4 (i.e 35 per cent of Rs 24), whereas an agricultural income tax of 45 per cent on the rest translates to Rs 16.2 (in case of Assam, 45 per cent agricultural income tax on Rs 36), which brings a total tax component of 24.6 per cent.

An industry source says that subjected to problems of increasing insurgency, the tea growers are put in a tight spot with respect to pumping in more investments, a review by the government will only help check the flight of capital and allow it to generate sufficient internal resources specifically earmarked for tea gardens.