Import, export, excise taxes and duties in Tamil Nadu, India

Import Taxes, Excise Taxes and the Discrimination of Tamil Nadu

T. Manohar

TAMIL TRIBUNE, April 2001 (ID.2000-04-01)

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Definitions:

Hindians: People whose mother tongue is Hindi (similar to Tamil speakers are sometimes referred as Tamilans or Tamilians).

Outline

1. Introduction

2. Cement Industry

3. Textile Industry

4. Matchbox Industry

5. Coconut Farmers of Kerala

1. Introduction

Import taxes and excise taxes are levied on commodities and products to raise revenues for the government, as well as to help or harm specific industries. Import taxes are levied on goods imported into the country. This has the effect of raising the price of imported goods compared to locally produced goods. Thus it protects local producers from foreign competition. Excise taxes are levied on locally produced goods as well. This, of course, increases the price and thus adversely affects sales of the product and hurts the producers. In summary high import taxes help the local industry while high excise taxes hurt the local industry.

Different commodities and products are often taxed at different rates. What is the rationale for setting different levels of taxes? It is based on government decision as to which industries to protect and which industries not to protect, which industries to help and which industries not to help. If everything is done fairly, these tax rate decisions will be based on sound economic analysis. In India, however, we see a definite pattern of making these decisions to help Hindian-based businesses at the expense of others. Remember, the Indian parliament is dominated by Hindi politicians and it is the parliament that votes on import and excise tax rates. We will illustrate it with a few examples. This is not a complete list of examples. We primarily focus on how Tamil Nadu is adversely affected but it is true for many other non-Hindi states as well.

2. Cement Industry

Cement is an essential commodity from an industrial development perspective. It is required for constructing offices, stores, factories, roads and bridges. Economic growth depends on the availability of cement at reasonable prices. If the cement price goes up, building prices go up and businesses and factories pass on the increase to consumers and it thus raises prices of most consumer goods.

Indian Government puts a high import tax on imported cement. This would make economic sense if there is an adequate or near-adequate supply of locally produced cement to meet construction needs of the country. That is not the case in India. There is a shortage of cement in India. Protected from foreign imports, Indian cement producers increased the price of cement substantially. Construction industry has to buy cement at whatever price. Cement prices are so high that the construction industry and consumers are asking the Indian Government to reduce the import tax, at least temporarily. As of this writing, the Indian Government has refused to do so. 

Why is the Indian Government doing this? Almost all Indian cement factories are owned by businesses from Hindi areas or areas ethnically closer to Hindians. The high import tax helps these businesses and garner them huge profits while the construction industry and consumers are hurt. This is a blatant example of how the Indian Government uses its taxation powers to help Hindian businesses.

3. Textile Industry

There is no shortage of textiles in India. Tamil Nadu is a big player in the textile industry. Tamil Nadu has about 80% of the small weavers. Ready-made garments from Tamil Nadu are well received in Europe. No industry can survive on exports alone. There must be healthy sales within India also. What does the Indian Government do? It slaps a 16% excise tax on textile. This hurts the textile industry. The small power loom industry, owned by Tamils and employing tens of thousands of Tamil workers is so harmed by Indian Government tax policies that it pleaded with it to reduce the excise taxes. Indian Government refused and hundreds of power looms are idle bankrupting Tamil-owned businesses and laying off tens of thousands of workers. Any economist would tell you that it is illogical to slap a 16% excise tax on an industry that is already suffering. But Hindians do not care much about unemployment in Tamil Nadu or other non-Hindi regions. (As a comparison, we want to point out to readers that the Indian Government levies zero excise tax on such items as carpets and marbles.)

4. Matchbox Industry

Another industry that is hit by Indian Government taxes is the matchbox industry. Again, Hindians do not have much of a stake in this industry; Tamil Nadu dominates it. This industry employs over 100,00 workers in the Virudunagar (Viruthunagar) area. The industry is hit so hard by the taxes that a disastrous unemployment situation looms the area.

5. Coconut Farmers of Kerala

We gave one example of how Indian Government's import and excise tax rates (levied differently on different products) help Hindian businesses and two examples of how they  hurt Tamil Nadu businesses. As we noted earlier, in general, Indian Government policies are helpful to Hindians at the expense of non-Hindi peoples, not just the Tamil people. We close the article by giving an example of how the southern state of Kerala (non-Hindi) is hurt by Indian Government policies. 

If you travel through Kerala, you cannot miss the sight of coconut trees dancing in the wind. Coconut oil is the primary source of income for tens of thousands of coconut farmers of Kerala. In recent years coconut prices have plunged so low that many small farmers could not make a living from their coconut farms. What is the reason for this price collapse? Imported palm oil is replacing coconut oil for cooking throughout India because import tax on palm oil is set low by the Indian Government. Why is import taxes on cement is set high while there is a cement shortage in India but import taxes on palm oil is set low while there is an abundant supply of coconut oil from Kerala? While the Indian Government does everything to help Hindian businesses (for example the cement industry dominated by Hindians), it does not care much about the non-Hindi Kerala farmers! There is no other economic reason for this differential treatment of the cement business and coconut oil business. (How Keralite workers in the Arab Gulf States were discriminated by the Indian Government was discussed in Section 5 of the article "Indian Government Chokes Software Industry in Tamil Nadu" [Reference 1]. This coconut farmers' crisis is yet another example of Kerala is shortchanged by the Indian Government.)

REFERENCE

1. Indian Government Chokes Software Industry in Tamil Nadu (by Thanjai Nalankilli), TAMIL TRIBUNE, March 2001.

RELATED ARTICLES

Archived articles on Economic Discrimination of Tamil Nadu by Indian Government (OR Search the internet with the following key words: economic discrimination Tamil Nadu India )

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