India has hiked its natural rubber cess after over a decade from Rs 1.50 a kg of dry rubber content to Rs 2 (around 4 US cents) effective September 1, 2011. In India, as in most other NR producing countries, NR cess is utilised mainly for research, new planting, replanting, advisory and extension activities, marketing and labour welfare.
It is expected that the additional revenue arising out of the latest hike in cess would come in handy for the Board for promoting NR plantation in non-traditional areas like the North East and new research initiatives in the wake of the severe domestic demand-supply gap of the commodity.
The industry, of course, is naturally sore about the hike as it comes at a time when NR prices are ruling quite high though the hike is effected only after more than a decade. On the other hand, market experts are of the view that the hike, coming after more than a decade, is only marginal. “As such, it won’t have any significant impact on the market,” they point out.
History of NR cess
The history of rubber cess in India dates back to 1947 subsequent to the passing of the Indian Rubber Act 1947, according to records available with the Indian Rubber Board. Initially the cess used to be collected directly from the planters. The rate prevalent from October 1, 1947 to July 31, 1955 was 50 paise per 100 pounds (1.1 paise per kg). From August 1, 1955 to March 31, 1958, the rate in vogue was Rs 6.25 per 100 pounds or 13.75 paise per kg.
The pound-based rates were dispensed with effective from April 1, 1958 when the cess was fixed at 13.08 paise per kg. This rate continued till March 31, 1961. From April 1, 1961 to July 29, 1975, the cess was 30 paise per kg and this period also witnessed the shifting of cess collection from planters end to rubber goods manufacturers. According to C. C. Chacko, Director, Licensing and Excise Duty Department, Rubber Board, India, this was mainly for administrative convenience as collecting from hundreds of small and big planters was not an easy and viable task.
The cess was raised to 40 paise a kg on July 30, 1975 and this remained unchanged till August 23, 1984. From August 24, 1984, the rate was revised to 50 paise a kg and was valid till August 31, 1994. The cess touched Rs 1 per kg on September 1, 1994 and
remained the same till August 31, 1998. From September 1, 1998 the rate was
Rs 1.50 a kg till the latest revision to Rs 2 a kg to ok effect from September 1, 2011.
According to Chacko the revenue from rubber cess during last financial year was roughly around 1,030 million. The exact quantity of revenue that could be generated following the recent hike in cess will be known only by mid next year, especially as assessment for the purpose of cess is half yearly.
There are over 5,000 rubber goods manufacturers, mainly tyre manufacturers, who are responsible for paying the cess. In fact, they pay to the growers a lower price after deducting the cess they have to pay. The Rubber Act provides for self-assessment of the cess. Accordingly, every manufacturer shall submit to the Board half yearly returns in the prescribed form for the periods, April 1 to September 30 and October 1 to March 31 of each financial year, along with the applicable cess amount in cash, cheque or draft.
In India, rubber exports are exempted from rubber cess whereas in other countries like Malaysia and Thailand, the cess is charged mainly on exports. In the case of India, the processors, including latex processors except those who produce PLC (pale latex crepe), are also exempted from paying rubber cess, said Thomas Ouseph, expert rubber analyst and former Secretary, Rubber Board, India.
The other major NR producing countries which charges NR cess are Malaysia, Sri Lanka, and Thailand. Others like Indonesia, Singapore and Vietnam do not levy duty or cess on export, production or domestic consumption of NR, says Jom Jacob, Senior Economist of the Association of Natural Rubber Producing Countries (ANRPC).
Multi-layer cess in Thailand
According to the latest available data, Thailand, the world’s largest producer of NR, has a multi-layered NR cess structure. The Thai rate of cess depends on the level of F.O.B price of RSS 3 (ribbed smoked sheet). The following is the country’s five-layer NR
cess structure which came into effect from October 1, 2010.
- If the rubber price is less than 40.00 baht per kg., the rate of cess is 0.90 baht per kg.
- If the rubber price is between 40.01 and 60.00 baht per kg., the rate of cess is 1.40 baht per kg.
- If the rubber price is between 60.01 and 80.00 baht per kg., the rate of cess is 2.00 baht per kg.
- If the rubber price is between 80.01 and 100.00 baht per kg., the rate of cess s 3.00 baht per kg.
- If the rubber price is more than 100 baht per kg., the rate of cess is 5.00 baht per kg.
At the current rubber price, the rate of cess is 5 baht per kg. As much as 85% of cess
is utilised for replanting and 5% for rese-arch and the balance for administration of
the Office of Rubber Replanting Aids Fund (ORRAF).
In the case of Malaysia, the world’s third largest producer of NR, the cess is 13.92 sen per kg. Up to year 2005, the rate was 13.77 sen a kg and was hiked that year to the 13.92 sen a kg.
The Sri Lankan system
There are three types of NR cess in Sri Lanka, the seventh largest producer of NR. Number one is cess for the export of raw rubber which was raised to Sri Lankan
Rs 12 per kg from Rs 8 recently, says Prof. Piyasiri Yappa, a Sri Lankan rubber industry expert. This cess is collected by the Customs at the time of export and goes to the Treasury.
The second is the cess collected for local consumption which is Rs 4 per kg. The process is monitored by the Rubber Development Department. The third is for the import of finished rubber products which is 5% of the CIF value. The Customs and the Export Development Board are involved in the process of managing this. 32.74% of the cess is utilised by the Rubber Research Institute and 64.09% by the Rubber Board, says
Revenue from cess is used for Research and Development, mainly by the Rubber Research Institute of Sri Lanka and also for the Rubber Replanting Subsidy Scheme of the Rubber Development Department with the Ministry of Plantation Industries as the coordinating body.
Apparently there is no major reaction against the recent hike in the cess on NR exports. In fact, Sri Lanka Association of Manufacturers and Exporters of Rubber Products, in a letter addressed to the Ministry, had urged to revise the cess on the export of raw rubber to Rs 24 per kg; but it was only increased to Rs 12 per kg by the Government.