Financial Times

Tax changes create problems for private tea factories
Private tea factory owners have warned that they could be forced out of business owing to a new tax and recent government fiscal policy changes that could also disrupt the livelihood of thousands of cultivators. The Private Tea Factory Owners Association (PTFOA) said the new Economic Service Charge (ESC) could cause them cash flow problems.

Private factory owners are entitled to only 32 percent of the total proceeds of the sale of tea by regulation with the balance 68 percent having to be distributed among farmers who supply green tea leaf to the factories. "However, the private tea factory owners are required to pay the one percent Economic Service Charge from the total proceeds of the sale of tea which do not belong to them," the PTFOA said in a statement.

"The private tea factory owners who borrow money from brokers and financial institutions will have to bear this cost up front which will completely affect their cash flow resulting in grave consequences," it said. The PTFOA also said the sudden withdrawal of the input tax credit facility would also raise their costs which they would be forced to pass on to green leaf suppliers.

Until December 2004 tea manufacturers and private tea factory owners could reclaim from the Inland Revenue Department the Value-Added Tax component paid by them for input items bought for manufacturing tea.

"However, unfortunately the government has virtually overnight, by gazette notification, withdrawn this facility without even consulting the Plantations Industries Ministry, thereby dropping the PTFOs from the frying pan into the fire," a spokesman said.

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