Indian Government Considers Scrapping Export Tax On Basmati Products

by Mary Swire, Tax-News.com, Hong Kong

12 November 2008

A recent change to the definition of basmati rice has forced the Indian government to re-think their export tax regime on the product.

After a long-running protest from exporters and farmers, the government accepted their request to include the pusa 1121 strain of rice under the basmati category. Under the re-classification, pusa 1121 can now be bought and sold as a basmati rice throughout India, giving farmers the chance to capitalize on the use of the renowned basmati brand name.

However, this small detail may have the power to reverse legislation introduced by the government in April, in which they banned the export of non-basmati products and levied an 8,000 rupee per tonne export tax on aromatic basmati.

Because of pusa 1121's new inclusion in the basmati category, it will now be eligible for taxation under the policy - unless, due to recent protest - the government use a technicality relating to the origin of the pusa strain to reverse the current export tax regime.

According to officials, hybrid varieties of rice accepted under the basmati brand must have genes from at least one traditional basmati strain. Pusa 1121, however, has no direct link to the original strain of basmati rice, which means that the government must now apply to completely change the definition of basmati - a long and complicated process - or remove the export tax on basmati products to avoid protests from farmers and exporters who are familiar with this knowledge.

In addition to this, the Indian government has also announced this week its intention to scrap an earlier proposal to impose an import tax on crude vegetable oil imports, which was to be introduced as a way of controlling the sharp fall in edible oil prices of late.

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