Currently, section 33AB of the Income Tax Act, allows for deduction of 20 per cent of income, if deposited with the National Bank for Agriculture and Rural Development (Nabard) for specific purposes like extension planting, replanting of old tea bushes, infilling and rejuvenation pruning. The industry's contention is that this limit be raised to 40 per cent, as the existing 20 per cent is inadequate to meet the investment requirement under the Ninth Plan export and output projections.

The additional 20 per cent tax benefit would translate into a total of 16 per cent cut in taxes in the forthcoming budget.

The industry has also urged the government to treat agricultural income as partof a single divisible pool of taxes in line with the recommendations of the Tenth Finance Commission.

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.

A 35 per cent CIT when imposed after deduction of 40 per cent of the pre-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. This is a saving of 8.2 per cent if computed after deduction of 20 per cent of the pre-tax profit. Under the present system of taxation, tea companies are denied the opportunity to neutralise the losses on account of agricultural income in one state against the profits on the same account made in anotherstate.

This is in contrast to a company of any other industry having multiple units in other states, which is able to offset losses in one unit to profits in another unit, primarily because corporation tax is levied on total profits of the company.

To combat the ever-growing threat of the lack of land availability for plantation expansion, the tea industry has asked for remedial and compensatory measures to offset losses in crop and income incurred due to increased replantation and uprooting techniques. This could be in the form of a proportionate waiver in the taxable income of companies, apart from increasing subsidies on the cost of replanting.

A provision to allow for a weighted deduction of 140 per cent on expenditure incurred on replanting could help companies balancing their net profits. This could be done by incorporating a provision in the Income Tax Act.According to a tea producer, a tax computation would be a booster to the replantation programme to increase production potential in the longrun.On the indirect taxes front, the industry has asked for a full waiver of the 8 per cent tax on package tea on packets over 100 grams to 20 kg, which they feel is a deterrent to value-addition.

This, the industry contends, will hinder the endeavour of tea producers to switch over from commodity to direct marketing, especially when tea packaging and sale in branded form is gaining momentum.

It has also suggested in its pre-budget memorandum that all teas exported out of India should be exempted from the existing cess, which happens to be 30 paisa for a kilogram.

The import duty on tea packaging machinery and filter paper should be fully exempt from import duty in the absence of indigenous production of these items, they demand.

Last but not the least, the decision of the government to allow imports of tea from Sri Lanka under a zero duty has thrown the industry off-guard. This is slated to have wide-ranging repercussions in the industry, say producers, as this will open the floodgates to cheaperteas from the adjoining countries.