Page 3 - Tax Regime for Improved Cookstoves and Its Implications
P. 3
TERI Policy Brief
Entry tax, Octroi (wherever applicable)2 Further, there are no manufacturers of ICs in
A schematic of the various taxes and duties levied on priority (high biomass usage) states like Bihar, Madhya
a cookstoves manufacturer along with the entities Pradesh, states of North East, etc. Often due to low
whose role is essential in the filing process is given in demand in this niche sector, manufacturers do not set
Figure 2. up their local offices or tap into standard commercial
retail chain that entails higher margins and these are
Challenges not available in remote areas.
Hence, NGOs and small-scale local entrepreneurs
Documentation Hassles in these priority states have to engage in elaborate
Most of these manufacturers belonging to Small and documentation to get road permit and Form C that is
Medium Enterprises (SMEs) have reported difficulty necessary for inter-state shipment of any product that
in handling the documentation and filing process attract CST and/ or VAT.
for multiple types of taxes and processes that IC
attracts, especially for inter-state shipment. These Form C and Administrative Hurdles
SMEs often do not have the expertise, experience,
or infrastructure to file documents online because Cookstove manufacturers report that the main hurdle
of poor digital infrastructure, lack of expertise, and in completion of the tax filing process is obtaining Form
orientation. It is also corroborated by a recent study C from customers who order inter-state consignment
carried out by the Boston Consulting Group, that of ICs.
nearly 90 per cent of the SMEs have no access to Form C is a sales tax declaration form that the
Internet. goods are for forward sale and not for end use. The
manufacturer is able to get this from the distributor/
Import Levied on parts and retailer only after the consignment of cookstoves
customs duty spares imported from reaches the customer in the other state and the
other countries customer clears tax dues on quarterly basis (Figure 3).
Excise duty* The processes of documentation for availing
Levied on goods Form C and associated precursor of submission of
Central Sales manufactured, quarterly VAT is often unmanageable for small-scale
Tax wherever applicable entrepreneurs with no experience or orientation of
such transactions. Hence, they are forced to seek
Road Tax/ Levied on inter state professional help of lawyers which incurs additional
Way bill sales of raw material costs which in some cases, is reported to be close to
1) Entry Tax and finished products the margins earned through stove sales.
2) Octroi Furthermore, NGOs by law cannot have necessary
(wherever Levied on inter state commercial registration; they either have to depend
applicable) movement of
cookstoves Manufacturer
VAT
Legend Levied on inter state
movement of
Manufacturer cookstoves
Levied on local sales
of cookstoves to
dealers/consumers
Distributor Energy
Entrepreneur (EE)
Manufacturer
Figure 2: Duties and taxes levied on the cookstove manufacturers Distributor/ Retailer Commercial Taxes
Department
Source: TERI compilation
From C issued to distributor
*Improved chulhas or biomass cookstoves (made of metal or pottery) are Figure 3: Process of obtaining Form C
exempt from the whole duty of excise as per the Notification issued by the
Government of India in 1991.
2 Octroi is applicable only in the state of Maharashtra.
ISSUE 13 SEPTEMBER 2014 3
Entry tax, Octroi (wherever applicable)2 Further, there are no manufacturers of ICs in
A schematic of the various taxes and duties levied on priority (high biomass usage) states like Bihar, Madhya
a cookstoves manufacturer along with the entities Pradesh, states of North East, etc. Often due to low
whose role is essential in the filing process is given in demand in this niche sector, manufacturers do not set
Figure 2. up their local offices or tap into standard commercial
retail chain that entails higher margins and these are
Challenges not available in remote areas.
Hence, NGOs and small-scale local entrepreneurs
Documentation Hassles in these priority states have to engage in elaborate
Most of these manufacturers belonging to Small and documentation to get road permit and Form C that is
Medium Enterprises (SMEs) have reported difficulty necessary for inter-state shipment of any product that
in handling the documentation and filing process attract CST and/ or VAT.
for multiple types of taxes and processes that IC
attracts, especially for inter-state shipment. These Form C and Administrative Hurdles
SMEs often do not have the expertise, experience,
or infrastructure to file documents online because Cookstove manufacturers report that the main hurdle
of poor digital infrastructure, lack of expertise, and in completion of the tax filing process is obtaining Form
orientation. It is also corroborated by a recent study C from customers who order inter-state consignment
carried out by the Boston Consulting Group, that of ICs.
nearly 90 per cent of the SMEs have no access to Form C is a sales tax declaration form that the
Internet. goods are for forward sale and not for end use. The
manufacturer is able to get this from the distributor/
Import Levied on parts and retailer only after the consignment of cookstoves
customs duty spares imported from reaches the customer in the other state and the
other countries customer clears tax dues on quarterly basis (Figure 3).
Excise duty* The processes of documentation for availing
Levied on goods Form C and associated precursor of submission of
Central Sales manufactured, quarterly VAT is often unmanageable for small-scale
Tax wherever applicable entrepreneurs with no experience or orientation of
such transactions. Hence, they are forced to seek
Road Tax/ Levied on inter state professional help of lawyers which incurs additional
Way bill sales of raw material costs which in some cases, is reported to be close to
1) Entry Tax and finished products the margins earned through stove sales.
2) Octroi Furthermore, NGOs by law cannot have necessary
(wherever Levied on inter state commercial registration; they either have to depend
applicable) movement of
cookstoves Manufacturer
VAT
Legend Levied on inter state
movement of
Manufacturer cookstoves
Levied on local sales
of cookstoves to
dealers/consumers
Distributor Energy
Entrepreneur (EE)
Manufacturer
Figure 2: Duties and taxes levied on the cookstove manufacturers Distributor/ Retailer Commercial Taxes
Department
Source: TERI compilation
From C issued to distributor
*Improved chulhas or biomass cookstoves (made of metal or pottery) are Figure 3: Process of obtaining Form C
exempt from the whole duty of excise as per the Notification issued by the
Government of India in 1991.
2 Octroi is applicable only in the state of Maharashtra.
ISSUE 13 SEPTEMBER 2014 3
