The recent slump in the average price of orthodox teas at the Calcutta Auction Centre is being blamed on the upcoming GST regime.
In early and mid-May, the average price was 3 per cent higher than last year, but that trend changed in end-May, with fresh produce selling 13 per cent lower than last year.
Orthodox teas are typically purchased by merchant exporters, who were exempt from paying 5 per cent VAT on condition that they submit proof of export once the teas are shipped.
But that will change with the onset of the GST regime. Exporters will henceforth pay the 5 per cent tax upfront and claim it on submission of bill of lading (shipping document). Ninety per cent of the tax will be refunded in seven days, but the rest is subject to scrutiny.
Normally, a merchant exporter takes four-five months from tea purchases to exports. Once the GST is ushered in, the exporter’s money will remain locked in taxes for that period. With the government pushing for a July 1 rollout of GST, buyers are reportedly factoring in the anticipated GST impact and are offering proportionately lower prices.
Big producer-exporters such as Goodricke Group and Rossel Tea admit that there is much apprehension in the market. Offerings for sale 26, the last pre-GST sale scheduled for the end of this month, are ruling low. The trend is likely to continue in the first few sales after GST is introduced.
Other reasons are also being attributed for the prevailing sentiment. “The March crop was bad, and April was not good either, which may be a reason for the higher average price for teas during the period,” says AN Singh, managing director of Goodricke. He expects the Tea Board and the Finance Ministry to step up awareness on GST matters to allay the fears and apprehensions of growers and exporters.
Producer-exporters may be marginally less affected by the GST on exportables, but sources in the merchant exporter community admit they are factoring in their cost of upfront tax payment and subsequent refund. Whatever be the reason, average tea prices have taken a beating. From 220-217 a kg during mid-May, the average prices fell to 209-w10 a kg in end-May. During the two sales in June, the average price ruled at 212 a kg (June 6-7) and 217 a kg (June 13-14).