Weighing their options: Traders say that by increasing VAT, the government will only encourage tax evasion
Sitting in his room in the centuries-old by-lane of Katra Ishwar Bhawan in Old Delhi’s Khari Baoli, Shyam Bansal constantly looks towards the TV. He flips compulsively between news channels searching as to whether the Delhi Finance minister AK Walia will reduce VAT on dry fruits. Elsewhere in Asia’s largest dry fruits wholesale market, proprietors are hoping for the same.
In the latest Delhi budget announced on 22 March, Finance Minister AK Walia had raised the VAT (value added tax) on dry fruits to 12.5% from the present rate of 5%. “VAT was 4% before January this year. They made it 5%. Raising the rate by 1% was understandable, but a hike of 7.5% is disastrous. Market khatam ho jayega” said Shyam Bansal, the general secretary of the Indo Afghan Chamber of Commerce- a body that represents most of the dry fruit traders of Delhi. “The Government says they want to raise revenues, but by hiking the rates so drastically, they are only going to encourage tax evasion and revenue will fall.”
“We might even have to move to neighbouring areas like Ghaziabad or Noida where the VAT rate is 5%. Ghaziabad kitna time lagta hai jaane mein”, he says darkly.
Other shop owners still hold out hope. Terming the rate hike as “shock therapy” Sandeep Gupta a trader sitting atop sacks of unshelled almond from California, pista from Iran and dates from Pakistan said “I don’t think the government will keep the rates so high, they will bring it down to around seven or eight percent.”
Fearing that the proposed VAT hike would seriously affect the Rs. 1400 Cr imported dry fruits business in Delhi- 70% of the Indian market, the traders held a protest meeting and submitted a proposal to the CM Sheila Dixit asking for a rate reduction.
The protest drew not only the dry fruit traders but also the kirana (grocery) traders of the Khari Baoli who were not directly impacted by the VAT hike. “This market was established as and is famous as a dry fruits market. If the dry fruit trade suffers, so will our kirana business”
Traders at the market complain of the unfortunate timing of the entire episode. The 17 day strike over low wages and poor working conditions by almond shellers in Karawal Nagar in the industrial area of Wazirabad in February this year cost the business several crores. A previous two week strike by workers in December 2009 had paralysed the industry during one of its peak seasons (New Year).
With the government not looking to back down and reduce the tax rate, traders in neighbouring suburbs look forward to receiving business normally headed towards Khari Baoli. One of the bigger wholesale trading markets after Khari Baoli is the Ghaziabad Kirana Mandi. Local traders there believe that such a vast difference in the tax rates between Delhi and UP will encourage the dry fruit market to shift there or at least encourage the traders to open offices here. They do not believe that the Delhi Government will change its mind. A trader Shankar Agarwal says “Most people do not really care where their kaju (cashew) comes from. Vyapari hi bas shor machayenge”
However he adds that the tax would not affect the traders dealing with Indian produced dry fruits like cashews and raisins. According to him, as Delhi does not have a entry tax format as compared to UP which has a Form 38 set up, this means that traders can simply say they deal with a smaller amount of goods than they usually do and avoid tax entirely. The difficulty will be in avoiding tax on dry fruits imported from abroad, where the quantity on which tax will have to be paid will be hard to hide.
The man at the centre of the controversy A.K Walia, said that the VAT hike was inevitable. “The Asim Das Gupta Committee had recommended raising the VAT rate across India to 12.5% in 2005. At that time we were in a good financial position and so we agreed to the traders request and kept the VAT rate at 4% . Because of this concession we lost tax revenue of around Rs. 50 Crore a year. This year we have only Rs. 200 crore and we also have to pay for the Commonwealth games. We have no choice but to raise the rates” he said. Walia added that neighbouring states were complaining that Delhi was already offering many subsidies such as cheaper diesel and LPG which were unnaturally bringing down the prices of dry fruits.
The Finance Minister added that he was not targeting the traders of Khari Baoli. “Taxes have been increased on other items as well. In addition I believe that other states will also have to increase the VAT rates in their states respectively.”
The VAT rate is set to be notified on 1st April. With no relief from the government looking to come through, a combative Shyam Bansal vowed to go to the courts. “We will appeal to the court that this measure is illegal. It encroaches on our constitutional right to livelihood. There should be a level playing field. Either increase the VAT rate on dry fruits across the nation to 12.5 % or bring down the rates in Delhi.”
Only the coming few days will determine whether Delhi’s dry fruit market is headed for a dry run.
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