Delhi Traders Profit off VAT


Consumers in the Indian state of Delhi pay a significant price for a 21 percent value added tax that the government assesses on lubricants. Lubricant traders and big end users have found a way to profit from it.

The National Capital Territory levies a VAT of 21 percent on finished lubricants – a tax that is charged to retailers. Presumably the cost would be passed on to consumers, but the law allows rebates for parties with tax-payer identification numbers – big end users such as heavy industry and auto service providers – to file for rebates if they submit receipts for their purchases.

Several lubricant traders in Delhi told Lube Report Asia last week that many of their fellow traders have found a way to make money off the situation. These sources, who spoke on condition of anonymity because they themselves participate in the practice, said traders offer retailers a 4 percent discount on lubricant orders, and retailers pass this discount on to their customers in order to drive up sales. With that discount, retailer customers dont bother with receipts, which retailers can then give to traders in exchange for the discount. Traders sell the receipts to big end users for 7 percent to 10 percent of the billed amount, and the end users then turn them in to the government for a 21 percent refund.

For example, suppose a trader would normally charge a retailer 100,000 rupees (U.S. $1,618) for a lubricant delivery. The VAT would raise the retailers price to 121,000 rupees, but instead the trader supplies the lubricants for 116,000 rupees in exchange for the receipts from the retailers sales. The trader then sells these receipts to a large end user for 7,000 to 10,000 rupees, netting a profit of 3,000 to 6,000 rupees. If the end user submits them for 21,000 rupees it would have profit of 11,000 to 14,000 rupees.

A senior official in Delhis Department of Trade and Taxes confirmed to Lube Report that such practice is rampant. The government official, who asked not to be identified because the government is sensitive about its inability to halt the practice, said it is difficult to put an effective check on it because retailers want quality products at low rates. When they get them, he said, they dont care for receipts.

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