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Thursday, Apr 07, 2005

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Industry & Economy - Taxation

Consumers' purse in for a squeeze

Sindhu J. Bhattacharya
Neha Kaushik

New Delhi , April 6

ONE week into the value added tax regime and prices are already on a rise. Among the first industries to pass on any increase in taxes, post-VAT, directly to the consumer appears to be the fast food and beverage segment, with several outlets having raised prices by up to 12.5 per cent on eatables.

Other consumer sectors such as automobiles and consumer durables still seem to be working out the exact impact of the new tax regime.

While many automobile manufacturers are calculating the implications on costs post-VAT, some dealers have gone ahead with price hikes of over Rs 1,500, depending on the model. Automobile dealers have been holding on to current prices since new stock is yet to arrive. "We will be passing on the 0.5-per cent differential (increase in tax following VAT to 12.5 per cent) from tomorrow, which is when we will get fresh stock," said a leading dealer.

The consumer durable industry, however, believes that VAT's effect on end prices would be marginal.

The All India Biscuit Manufacturers' Association President, Mr B.P. Agrawal, says input costs have risen by up to 8 per cent for the food industry and unless the Government takes immediate corrective measures, biscuit prices across brands could rise by at least 5 per cent over the next fortnight.

Even if you want to grab some cold coffee at Café Coffee Day or munch a sandwich from Subway, your pocket is going to be lighter by up to 12.5 per cent, since most of the branded food chains have passed on the VAT levy to the consumer.

The Chief Operating Officer of Barista Coffee Company, Mr Brotin Banerjee, says, post-VAT, input costs have gone up by 4 per cent and the company will take a decision on revising pricing upwards within a week.

The McDonald's outlets across Delhi have raised prices by up to 45 per cent for some items. For example, Veg Surprise is now priced Rs 9 higher at Rs 29; the soft serve ice-cream cone is dearer by a rupee, whereas a medium pack of French fries will now cost Rs 11 more at Rs 39.

Where FMCG products are concerned, a Dabur India spokesperson admitted that input costs have indeed gone up marginally but the company has no immediate plans to pass this on to the consumer.

Some others were tight-lipped about their future pricing initiatives and seem to be adopting a wait-and-watch policy.

Among the consumer electronics manufacturers, Samsung India said it was still assessing the impact of VAT, whereas LG Electronics India admitted to have already raised prices up to 10 per cent due to a combined impact of rising input costs and VAT.

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