KATHMANDU: Though the budget for fiscal year 2009-10 has put the agriculture sector in its priority list, Nepal Flour Mills Association (NFMA) today expressed concern over the lack of proper policy and programmes for development of agriculture-based industries.

“Due to increase in VAT, industries like mustard oil mills and flour mills are going into shut-down mode,” said NFMA president Kumud Kumar Duggad. Of the 22 flour mills, only 14 are operating while of the 60 oil mills only 20 are running. “The government is aware of the troubles this sector is facing, but it has reduced the 50 per cent discount to 25 per cent with 75 per cent VAT in these industries,” Duggad said.

NFMA said there is no VAT system either in India or in any other country. Due to VAT, flour price in Nepal is much higher compared to that in India.

According to Duggad, there is a price difference of 10-12 per cent between the flour price in India and Nepal which encourages smuggling. “The higher price of flour here is directly affecting farmers at the local level as our farmers are deprived of their share of the local market,” Duggad said adding that due to high price the local product has to face tough competition and even a lack of market. Annually, flour worth Rs 5 billion is consumed. Of the total flour consumed, 60 per cent is consumed in the domestic market and 40 per cent in the Indian market. Duggad said that with the increase in VAT the ratio might change now.

The new budget has reduced the discount in flour from 50 per cent to 25 per cent while in the case of mustard oil there is no discount system allowed now.

Meanwhile, Nepal Vegetable Ghee-Oil Manufacturers’ Association has also said that the budget has posed a threat to domestic industries and it will fuel price hike.

Before the budget, the crude soybean oil and crude sunflower oil had an import tax of five per cent and VAT of 6.5 per cent (50 per cent VAT exempted) — making it to a total of 11.5 per cent — and crude Palm/Palmolin had and import tax of one per cent and VAT of 6.5 per cent — making it a total of 7.5 per cent.

But the rate has now been increased to 18 per cent that consists of five per cent import tax and 13 per cent VAT, whereas in India, the import tax applied to these products is zero per cent and VAT is of only four per cent, it said.

The domestic industries is on a verge of cllopse due to the overwhelming increase in taxes and a huge price parity between the domestic brands and those imported from India through illegal channels, it claims.

There are 21 industries in Nepal providing employment to 8,000. These industries have not been able to export to India from the past 16 months and in the same time are operating at a low efficiency of 15-20 per cent only, according to the association. “The added tax will increase smuggling and government will lose revenue apart from 8,000 employees.”

The association demands to reduce 75 per cent erduction on VAT and removal of import tax. It draws the attention of the government to stop illegal import of the products and give a fair chance for competition to the Nepali brands.