CategoriesTaxation
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Letter for Revision of VAT Rates

This is the letter that we submitted to the Industry Chamber and hence to the Government of Karnataka to clear many of the anomalies in Value Added Tax for Coconut Oil in Karnataka. Majority of these issues are brought out in an earlier post.

To,

The President
Puttur Chamber of Commerce and Industry

Subject :- Revision of Value Added Tax rates for Coconut Oil as Edible Oil

Respected Sir,

With the Union budget and the State budget coming up shortly. As part of the Coconut Oil Industry, we request the Government to

  • Reduce the Value Added Tax rates for Coconut Oil from present levels (5%)
  • Consider coconut oil sold in all quantities (above/below 200 gms) as for edible purpose and apply same rate (instead of 5% and 13.5%)

The following are the points considered to arrive at the above conclusion

  • Coconut Oil is a prime cooking oil not only in Kerala but also in coastal Karnataka.
  • Neighboring states of Kerala and Tamil Nadu don’t have any taxes for Coconut Oil. While in Karnataka VAT is 5% for quantity above 200 grams and 13.5% for quantity equal to and below 200 grams.
  • Under such high tax regime, business that pay taxes can’t compete with businesses that don’t pay taxes. So the market is flooded with adulterated and lower quality products.
  • Various researches have shown that Coconut Oil is good for heart and health, so it should be promoted for use in cooking.
  • Since the price of coconut oil is higher, other edible oils such as palm oil, sunflower oil and soybean oil are being imported without any customs duty and is becoming a threat to indigenous coconut industries and farmers.
  • While other edible oils are trading with lesser taxes, coconut oil with higher taxes is not having a level playing field.
  • Weaker sections of the society who earn daily wages and have to spend for their daily food prefer to buy their cooking oil in smaller quantities like 50 ml, 100 ml and 200 ml. These are now taxed at a whopping 13.5%!
  • Prices of the essential commodities like coconut oil and coconuts have doubled over last one year and is becoming less affordable to majority i.e. middle and lower class consumers.
  • We manufacture coconut oil for edible purpose, we follow the Prevention of Food Adulteration guidelines and have obtained Edible Oil Packing license for the same. But the products we sell attract taxes that are meant for cosmetic items and not edible items.
  • Being an essential commodity, the market is extremely price sensitive and any reduction in taxes will benefit the farmers and lower class consumers tremendously.

Request you to kindly communicate the matter to the respective government departments for taking necessary steps and actions.

Thanking You,

Yours faithfully,

For Cocoguru Coconut Industries Pvt. Ltd.

B. Keshava Ram

Managing Director

Update on 25th February 2011 – Karnataka Government hikes tax rates for goods presently taxed at 13.5% to 14%

Update on 1st August 2012 – Rate is again hiked from 14% to 14.5% with effect from August 1st 2012 to July 31st 2013

CategoriesTaxation
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Cocoguru Coconut Industries Private Limited – Incorporated


Company Facts

Name – Cocoguru Coconut Industries Private Limited

Registered Office
IV-616,Sri Rama Building, Main Road,
Yelmudi, Puttur Taluk, Dakshina Kannada District,
Karnataka State, India. PIN – 574201

Business Activity – Manufacturing of Coconut based products, Presently Pure Coconut Oil

Promoters –
Shivashankar Bhat – Chairman
Keshava Ram – Managing Director
Santhosh – Director
Gayathri Devi – Director
Incorporation Date – 2nd September, 2010 (World Coconut Day)

Why Cocoguru Coconut Industries?
Cocoguru brand has a simple vision of “spreading the benefits of coconut to people”. Brand was launched in early 2010 to direct Sri Rama Industries’ focus on manufacturing coconut based products. Now the business activities of the brand Cocoguru are separated to a new company. Having the same product brand and corporate brand simplifies the branding process.

Dissecting each aspect of the name, we have

  • Cocoguru – Trademark, brand name
  • Coconut – Vision, brand essence is about Coconuts
  • Industries – Business activity is not just about trading/marketing, it also involves manufacturing

Why Private Limited company?
Forming a company is not compulsory as

  • The cost of incorporation, amount of procedures and regulations are high in a company
  • All the promoters and top management personnel are in the same family
  • The company has no external equity investors as of now

Yet we have formed a company because

  • It enables separation of personal and business activities
  • It enables us to raise funds though sale of equity when chances of raising debt funds have exhausted
  • It enables professional management by bringing in professional managers on merit and family can cede day to day management activities to them.
  • Promoters are very serious about the business; want to scale it to a high level and become a Public Limited company

What is the future of Sri Rama Industries?
Sri Rama Industries is a proprietorship concern started in 1987 by Shivashankar Bhat for Coconut Oil manufacturing.

  • The existing manufacturing setup at Parladka will be tailored to just provide job work service. Whereby local farmers can get oil extracted from their own copra using our facility.
  • The existing retail outlet cum copra collection centre at Yelmudi will be used to distribute Cocoguru company’s products to local, Puttur market and collect copra on behalf of Cocoguru Company.
  • The 1st floor of the building at Yelmudi will be rented out to the company for its Registered Office.
  • Sri Rama Industries being the owner of trademark Cocoguru, will license it to the company for marketing its products.
  • Sri Rama Industries will also carry out non-coconut based businesses like trading of Til Oil, Pepper and Honey.

What now/next for the Company?
The company has the following agenda for the next 1 year.

  • A new factory, at new site, to manufacture and pack coconut oil
  • Factory will be highly mechanized/automated/modern, ISO 22000 Food Safety management standard
  • Have a copra crushing facility of 15 tons in 24 hours
  • Acquire all the necessary licenses and commence production in 6 months.
  • Spread the market/distribution network for Cocoguru products from Puttur to whole of Dakshina Kannada
  • Begin supply of edible copra and by products like Oil cake and 2nd quality copra

Company got incorporated on 2nd September, recognized as World Coconut Day. For the company that does its business with coconuts, its truly a great day to be born. Seek the blessings and everything (kalpa) of ‘Kalpavrisksha’ for the company’s great future.

CategoriesTaxation
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Unique challenge with marketing pure edible coconut oil in small packets

It is logical that per unit cost of a commodity sold in bulk is less than that sold in lesser quantity. But that difference isn’t very significant. Ideally, if 1 litre of coconut oil pouch costs 60 Rs, 100 ml pouch should be around 6.5 Rs if not just 6 Rs. Government tax laws makes it costlier.

Here is how
Pure coconut oil is used all over India as a hair oil (cosmetic purpose) but people of coastal Karnataka and Kerala use it for cooking (edible purpose) also. Edible items are considered essential commodities and are taxed less. Government in its bid to differentiate the usage of pure coconut oil has come out with this dubious way of classification. All packets above 200gms are for edible purpose, attracts no excise duty and 4% VAT. All packets at or under 200 gms attracts 8.24% excise duty and 13.5% VAT OR combined (8.24% + 13.5% + 8.24%*13.5%) 22.85% ~ 23%. So, 100 ml pouch which was 6.5 Rs without tax now becomes 8 Rs after tax i.e. 80 Rs per litre. 1 litre pack which was 60 Rs before tax will become 62.4 Rs after tax. That is a difference of 17.5 Rs or 28%!

Why is this dubious?
Lower end consumers like the daily wage workers who use coconut oil for cooking like to buy in smaller quantities. They have to shell out 28% extra for an absolutely essential item like edible oil despite their inability to afford. Government is essentially heavily taxing those poor consumers while it should have done it otherwise.

This anomaly presents a great opportunity to unorganized coconut oil manufacturers to avoid taxes and sell cheap gaining a clear 23% (combined tax) price advantage over branded organized players. The consumers at this segment are extremely price conscious and are willing to switch brands for price difference. How can brands compete with them?

A more sensible way is to classify based on whether they follow the food standards i.e. Prevention of Food Adulteration Act (PFA) and have an Edible Oil Packing (EOP) License. Those brands that follow PFA guidelines and have EOP license should be considered as essential and hence less tax.

News Item about the same issue – Marico to move court on coconut oil excise notice, Dabur May Follow Suit.