India’s Tea Auction GST Resolved

Bulk tea for shipment, Korakundah

Implementation of India’s new goods and services tax (GST) is chaotic according to news reports and tea industry executives.

“This is likely to increase the effective retail prices by a minimum of 6-8 percent,” Nirmal Khurana, chairman of the finance committee at the Indian Tea Association (ITA) told the Business Standard.

The GST, which is applied nationally, and separate goods and services taxes by the individual states, is the most significant tax reform since 1947. Businesses that began collecting taxes July 1 are required to make payments by September.

The GST consolidates more than a dozen sector-specific taxes.

Anshuman Kanoria, chairman of the Calcutta Tea Traders Association (CTTA) told the Millennium Post that “Issues in relation to raising invoices after applying GST for tea auctions have been sorted out.” The latest sale at the Kolkata auction center concluded last week followed by auctions in Siliguri and Guwahati centers.

All three tea West Bengal and Assam auctions adopted a uniform model to comply with the national GST, he said. Once tea is sold at the auctions, the producers will create a tax invoice for the broker acquiring the tea. Invoices will now show a central CGST tax rate of 2.5 percent and a state SGST tax rate of 2.5 percent. The Tea Board of India has endorsed uniformity.

Last week auction centers in Coonoor and Coimbatore in southern India applied a different rate, according to reports in the Business Standard. This is because the seller’s contracted price and what the buyer pays differ. It is the buyer who makes payment to the broker through the settlement bank.

This inconsistency led to a whole lot of queries from the authorities on the sanctity of such transactions where the contract is raised by A and payment is made by B, according to Hemen Shah, chairman, South India Tea Exporters Association. Several buyers boycotted the auction as a result.

Two dozen of the 29 states have abolished tax check points at their borders where compliance and goods inspections often delayed deliveries by up to several days.

“While the medium-to-long run benefits of GST cannot be disputed, the short-run impact on growth is expected to be negative as compliance, confusion and inventory effects take a toll,” said Abhishek Gupta, India economist at Bloomberg Intelligence told the Economic Times. “However, recorded GDP growth is still likely to show an increase as part of the shadow economy shifts to the formal sector.”

Sources: Economic Times, Business Standard, Millennium Post