Cut in ST, abolition of SED: impact to be visible on prices from July 1: traders

The impact of a one percent reduction in the rate of sales tax and abolition of the 2.5 percent Special Excise Duty (SED) would be visible on prices from July 1, 2011 onwards, traders said. The post budget increase in prices of certain consumer goods can be attributed to higher electricity/gas tariffs, increase in POL prices and other inputs, traders maintained.
Sales tax rate has been reduced from 17 to 16 percent and the SED at the import stage has been abolished from June 20, 2011. However, applicability of these rates on local supplies or domestic consumption would be from July 1, 2011. The sales tax rate at local stage has not been reduced from June 20, 2011. Resultantly, importers have now speeded up clearance of their imported consignments containing raw materials as well as finished products at the lower rate of 16 percent with no SED. It is expected that all such blocked consignments would be cleared at the import stage due to applicability of reduced rate of sales tax on imported consignments since June 20, 2011.
As soon as the sales tax rate was reduced and the SED abolished from June 20, there was a major jump in the clearance of consignments at customs ports. So far, 17 percent sales tax is applicable on local stages within the entire supply chain till its reduction would become applicable from next fiscal year.
During a survey conducted by Business Recorder, traders have termed higher electricity tariffs, gas and POL prices and higher shop rents as major factors behind price hike of certain items in the market. This has also increased their cost of doing business, which ultimately resulted in increase in the prices of such commodities without incorporating any decrease in taxes.
However, the reduction of only one percent sales tax would not have any major impact on the consumer prices of finished products, traders maintained. They also said that they were importing these items at higher cost, which has been passed on to the consumers. Commenting on the profit margin they said that on selling of each imported item a shopkeeper earns 10-15 percent profit.
Popular potatoes chip makers Lays has reduced the weight of its different packs besides reducing the margin of dealers and distributors while the company is charging new higher prices. Prices of formula milk including Everyday, Nido and other such products' increased by Rs 40 per kg before the budget. The rationale employed: if taxes are reduced the profit margin would rise.
Bath-size soap like Lux, Safeguard, Rexona before the arrival of new budget were being sold at Rs 35 per standard pack, which now are being sold at Rs 38-40 per standard pack. Manufacturers of bread and bun have also increased prices by 10 percent.
The suppliers of green tea and normal tea like Tipal and Lipton increased prices just before the budget by 20-25 percent. One week before the budget 1/4 kg of Lipton Yellow Label was available at Rs 100, which after the budget is available at Rs 125 per 1/4 kg pack.
Similarly prices of all the perfumes and cosmetics have increased by 10-20 percent within one month. The imported diapers, oil, shampoos, chocolates, washing powders, liquid-dish washers, children garments, hair-dyes, juices including tin fruits, soaps and toys have become more costly after the budget, traders added.