The Hindu Business Line : Uneven VAT rates among States hurt Bengal footwear sector

Where it pinches
Regional players wanting to emerge on the national arena feel discouraged by the tariff schedules published in the West Bengal VAT legislation.
The zero-tax concession accorded to the low-priced footwear sector in Delhi in the recent State Budget is another dampener.

Kolkata , March 15

Lack of uniformity in VAT rates among States (as the tax is still not implemented by some of the major States) is hurting the footwear sector in West Bengal badly, and also threatening livelihood of lakhs of people engaged in the trade.

Regional players wanting to emerge on the national arena feel discouraged by the tariff schedules published in the West Bengal VAT legislation recently on the one hand, and the zero-tax concession accorded to the low-priced footwear sector in Delhi in the recent State Budget.

Several industry representatives felt that while the UPA Government has recognised footwear as a priority sector, its constituent ally in Bengal was allowing the once thriving industry in the State to fade out through such "unjust imposts".

As per the Bengal VAT Act, footwear other than chappals and sandals, made exclusively of plastic and rubber (like hawai chappals), will attract VAT rate of 12.5 per cent.

Outsourced footwear

In Delhi, it is zero rated, and the fear is that the much cheaper outsourced footwear from Delhi-Agra areas would sound the death-knell for manufacturers in Kolkata, who supply to the entire eastern region plus the North East. Says a Kolkata-based footwear player with an all-India distribution network: "Most of us will not only be wiped out from the Delhi and adjoining markets, but will also have to face intense competition at our doorstep from cheaper footwear from the Delhi-Agra-Kanpur markets.

In Bengal, footwear, if not made exclusively of plastic or if it is a closed shoe, is chargeable to VAT at the rate of 12.5 per cent from February 1, 2006, whereas in Delhi and Haryana, irrespective of whether it is made of plastic or not, it attracts a tax of only 4 per cent.

Industry sources say it was ironic that the chairman of the empowered committee of finance ministers on VAT was Bengal's own Finance Minister Dr Asim Dasgupta, and yet VAT rates are not encouraging to footwear manufacturing in the State.

Footwear manufacturing in eastern India (both organised and unorganised), catering to a market of around Rs 3000 crore, is almost entirely concentrated in Kolkata. Under the earlier WBST provisions, the rate was 8 per cent for the same products on first point of sale. It is learnt that chappals and sandals made exclusively of plastic and rubber now attract 4 per cent VAT rate under Schedule C, which was earlier chargeable to ST at the rate of 3 per cent.

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