Sales tax cut makes no reduction in tea prices

Despite a cut in sales tax on imports, which declined to 16 percent from 19 percent, the price of black tea continue to surge on the retail market, traders told Business Recorder on Tuesday. "The increasing price of black tea on the international market has largely made the commodity costlier on the local market, offsetting the government's move to slash sales tax at import stage," importers said.
"Since August this year, the price of tea has increased in the local market by as much as Rs 60 per kilogram, denting the commodity's sales," a retailer said, adding that there was no relief in sight for consumers. Traders said that they had expected a drop of Rs 60 per kg in tea price after the sharp cut in sales tax on tea imports, but the prices, instead surged by Rs 50-60 per kg in the past two months.
They complained that this had deterred packers and blenders to pass on the impact of the reduction in sales tax to consumers. Previously, the wholesale price of high-quality Kenyan tea was Rs 460 per kg, which was now being sold at Rs 520 per kg while its retail price was Rs 560 per kg.
Similarly, the price of Indonesian tea also soared by as much as Rs 50 per kg. Now, this tea variety is being sold at Rs 430/kg in retail markets against its previous price of Rs 375/kg. The price of Rwandan tea, which is a major contributor in the country's tea blending industry, also showed a rising trend in wholesale markets, increasing by Rs 40 per kg.
Sources said that smuggling of the commodity was also on the rise, which was affecting the legitimate tea trade. They said that tea was being smuggled under the Afghan Transit Trade, Nato supplies, adding that all such shipments were being cleared through dry ports. The government, traders said, was losing $100-120 million on average every year to tea smuggling. A tea importer said that despite the cut in sales tax, smuggled tea was still Rs 20-30 cheaper than legally-imported variety.
Retail market sources said that wholesalers unwillingness to cut their profit margins was another factor because of which the impact of sales tax reduction on tea imports could not be passed on to consumers. "The profit margin should not be more than Rs 5-10 per kg, but wholesales are earning exorbitant profits on tea by (charging as much as) Rs 30-50 per kg, resulting in a hike in prices in retail markets," he said.