The finance ministry has rejected a proposal to make a cess on natural rubber cenvatable to allow bulk consumers such as tyre-makers tax benefits, according to senior government and industry officials.
Tyre-makers in India, which surpassed the US last year as the world?s second-largest natural rubber consumer, are mandated to pay a R2 per kg cess on the commodity towards overall development of the sector.
Last year, the department of commerce had sent a proposal to the revenue department of the finance ministry to consider making the cess cenvatable. With no official announcement for long, the Automotive Tyre Manufacturers Association, whose members are responsible for around 90% of the country?s tyre output, has approached the Delhi High Court seeking an early decision on the matter.
?The proposal for making the cess cenvatable has been turned down now. Also, it doesn?t seem feasible at this moment to accept another demand of the industry that producers be made to pay the cess on natural rubber and not consumers,? said a senior government official, who didn?t want to be identified.
Last fiscal, the cess accounted for around R100 crore in revenue for the government, according to industry officials.
Tyre-makers, who account for more than 60% of India?s natural rubber demand, are now struggling to cope with a slowdown in vehicle sales and erosion of margins in the world’s second fastest-growing automobile market due to an economic crisis.
After the sharpest skid in more than a decade in October, car sales in the country rose 7% in November from a year earlier–the first rise in as many as five months. Almost all other automobile segments, too, are witnessing a lower-than-expected rise in sales.
India was one of the few countries where natural rubber consumption rose at a much faster pace in 2010-11 than output because of surging demand for automobiles, driving up prices by more than 50% from a year earlier.
?This (natural rubber) is one of the rare sectors where consumers are made to pay cess and not producers just because there is a problem of cess collection due to their vast numbers…. Moreover, the rubber industry in Kerala, which produces most of the natural rubber, is highly developed. So what is the need for such a cess?,? said ATMA director-general Rajiv Budhraja.
A more than 16% depreciation of the rupee this year has offset any gains from a government decision to allow tax-free imports of up to 40,000 tonne of natural rubber this fiscal, making it difficult for tyre-makers to purchase in bulk to bring down raw material costs when domestic prices are high.
India will likely import around 1,25,000 tonne of natural rubber in 2011-12, down nearly 30% from a year earlier, according to industry sources.
ATMA had initially projected a shortfall of around 2,00,000 tonne in 2011-12, expecting higher demand from the country?s booming automobiles sector.
India, also the world?s fourth-largest natural rubber producer, expects output to rise 4.6% to 9,02,000 tonne this fiscal, according to the Rubber Board?s forecast.
