Kathmandu, June 2

The market price of daily consumable items will most likely rise soon as the federal budget has scrapped value added tax (VAT) rebate facility for traders of oil, pulses and flour, among others, and also removed the provision of tariff exemption.

Immediately after the government unveiled the budget for fiscal year 2018-19, the Association of Nepalese Rice, Oil and Pulses Industry signalled the hike in price of daily consumable items citing the government had deviated from the earlier policy of protecting domestic industries through VAT rebate for agro processing industries. The agro-based industries will be hit hard by the government’s new tax policy announced through the federal budget, as per the association.

“Earlier, the government had extended up to 40 per cent VAT rebate facility to agro-processing industries to safeguard domestic industries.”

The facility was extended to importers of oil seeds who produce edible oil within the country. The federal budget has scrapped this provision, along with exemption of customs duty. Traders will now have to pay five per cent customs tariff on oil seeds compared to one per cent earlier. Consequently, the price of one litre of edible oil could rise by up to Rs 15, as per domestic industries.

“With just five per cent goods and service tax (GST) levied on edible oil in India, it will be cheaper in India and people could simply resort to bringing in the commodity from the southern neighbour,” according to the association.

Earlier, Finance Minister Yubaraj Khatiwada had hinted that tariff on finished products may  be raised and that on primary agro products could be brought down for maximum value addition in the economy. This was expected to attract investment in agro processing industries and also create job opportunities.

However, the budget has raised customs tariff of unprocessed lentils to 10 per cent, which is equivalent to tariff for pulses (as finished goods). The equal tariff policy will adversely affect employment in the pulses industries, according to Subodh Kumar Gupta, general secretary of the Association of Nepalese Rice, Oil and Pulses Industry.

The owners of agro-based industries have said that the government has not taken any initiative to curb the import of rice despite its import value standing at around Rs 2.5 billion per month and domination of Indian brands in the local market.

“To protect the rice mills and promote Nepali brands, the government should have hiked the tariff rate on rice. By not taking any initiative to curb rice import, agro production base in the economy will be negatively impacted,” said Gupta.

However, Shishir Kumar Dhungana, revenue secretary at the Ministry of Finance, said that the price of daily consumables will not rise as claimed by the association as they have been asked to import raw materials in bulk and take benefit of the economies of scale in processing and production.

Meanwhile, the government will intensify market monitoring based on the stocks disclosed by the wholesale traders to the tax administration just before the budget to prevent consumers from paying higher prices for food items.