What does 35% cess on apples mean to Kashmir fruit industry? Special ZT Report

Ever since the announcement of the cess on apples in the Budget Speech by Finance Minister, Nirmala Sitharaman, people associated with Kashmir’s apple industry are curious to know how this move could impact the competitiveness of Kashmir apples and their business.

Ziraat Times has engaged with several budget and finance experts, analyzed the customs duties regime on apples and the novel move of introducing a cess. Here are the three scenarios that have emerged from the analysis, and how they could impact Kashmir apple business.

India’s apple produce and imports

So why the 35% cess on apples?

In her budget speech, Nirmala Sitharaman announced the imposition of an Agriculture Infrastructure and Development Cess which will be charged at the rate of 35% on apples on the customs side.

On the other hand, basic customs duty rates have been cut on apple imports by 15%.

So what does this mean for the competitiveness of Kashmir apples?

Major exporters of Kashmir apples informed Ziraat Times that they were yet to grasp the full impact of this measure on the cost of imported apples into India and competitiveness of Kashmir apples in the country’s markets.

Based on wide consultations with apple exporters, government officials, traders and industry watchers, Ziraat Times comes up with the following three possible scenarios that could play after the introduction of the cess on apples.

Scenario 1:

Some financial experts believe that this measure is only intended to earn some additional revenue for the Union government. Since cess is not supposed to be shared with states, in contrast to import duties, the Union government wants to bolster its revenues to come up with a stronger spending intervention to address the farmers’ agitation.

Payaswini Upadhyay echoed similar views in Bloomberg on Tuesday, “Revenue collected from basic customs duty goes into the Consolidated Fund of India, which gets divided between the central government and the states. But any revenue collected on account of cess goes to only the central government.”

Pratik Jain, indirect tax partner at PwC India, agrees, “While a portion of basic customs duty goes to the states, cess revenue lies solely with the central government, to be used for a specific purpose (agricultural infrastructure in this case), Jain pointed out.”

For most of these items, the final price is unlikely to vary, Ritesh Kanodia, indirect tax partner at Dhruva Advisors, said.

That means, in this scenario, business prospects of Kashmir apples would remain unchanged in the short term.

Another scenario, that some experts believe could play out would result in higher cost of imported apples and, as a consequence, result in a dip in imports.

That could mean the demand and price for Kashmir and Himachal apples would go up and their export to countries like Bangladesh, Nepal and UAE would go down.

In this scenario Kashmir and Himachal apples could be consumed domestically more, leading to less exports and, potentially, lower earnings for exporters.

Scenario 3:

In this secario, the imported apples to India could get cheaper.

Narendra Safaya, an eminent lawyer believes that the cess collected on imported apples would ultimately be used for the development of horticulture infrastructure in J&K.

“There is no GST on apples. The custom duty is applicable on imported apples. The cess is on imported apples. The cess goes to improving agriculture infrastructure for apples. This cess collected from imported apples will be invested in apple producing states. J&K will get benefited. The custom duty goes to consolidated funds income of country while as cess to the air marked sector in this case apple infrastructure development”, he said.