No hike in VAT likely this year

Concession evades sales tax imposed on petroleum products

The State government is unlikely to hike taxes on purchases for the financial year 2012-13. The move will come as a relief for the common man already reeling under price rise of essential commodities.

On the flip side citizens of the State are also unlikely to get any concession from the high sales tax on petroleum products in the State budget scheduled to be presented on March 21.

One of the government’s largest revenue grosser –– commercial taxes –– is mobilised mainly through levies targeting purchases. Practically, every commodity you purchase –– from medicines to electronic goods, from motor vehicles to IT products, from readymade garments to edible oil and from cement to timber ––  comes under the Value Added Tax (VAT) bracket.

Having increased the VAT rates during the last two years, the State government is unlikely to touch the tax slabs for the coming fiscal (2012-13), sources in the Finance department said.

There is not much need for any tinkering with the present VAT slabs as the Commercial Taxes department is all set to cross the budgetary target of Rs 26,700 crore for the financial year 2011-12. The State government just needs to keep the momentum going.

Also, the State is entering an election year and the government would be thinking twice before introducing any additional resource mobilisation measures.

A major factor for the fillip in resource mobilisation has been the increase in government’s earning from sales tax proceeds on petrol and diesel following a series of hike in fuel prices.

The State has kept auto fuels out of the VAT regime and charges 26 per cent sales tax on petrol and 18 per cent sales tax on diesel.

In addition, there is a five per cent entry tax that is levied on every litre of petrol or diesel coming into the State. In Karnataka, the State taxes on fuels are ad valorem and move in proportion with any rise in petroleum prices. In other words, a hike by the Centre automatically enhances the cash flow to the State exchequer.

The State exchequer’s additional revenue during the fiscal due to the petrol and diesel price hikes is likely to touch Rs 1,000 crore, official sources said.

Karnataka is one among those states which levies the highest tax on petroleum products. There has been demand from various quarters that the sales tax rates be slashed. However, the State government is unlikely to provide such concessions in the State budget proposal 2012-13.

After all, more than Rs 4,500 crore is anticipated from sales tax on these two commodities alone during the fiscal. However, the State government is keenly looking at the proposals to be made in the Union budget, particularly changes made in the excise duties and whether there would be any announcement to de-control diesel pricing on the lines of petrol before taking a final decision, sources said.