Traders fear VAT hike may divert business

Chief Minister B S Yeddyurappa on Thursday in his budget proposals for 2011-12 had doubled VAT slab on gold jewellery, semi-precious and precious stones from the present one to two per cent. Traders feel that the move would prove costly for the state’s economy than the Rs 460 crore anticipated as additional resource mobilisation measure.
The hike may seem minuscule, but it adds up as the tax is on high value goods, they point out. For instance, buying 10 gms jewellery would cost Rs 200 more from April 1 this year. The hike comes at a time when the marriage season is round the corner - wherein there is a spurt in gold/jewellery purchase.

The All India Gems and jewellery Trade Federation has described the government proposal to double the VAT rate on bullion as “unhealthy and regressive step”.  
“The customer today is already burdened with the rise in price of gold and silver and increase in VAT will only add to the current agony”,  said Federation President Vinod Hayagriv.

Yeddyurappa also announced that VAT rate on several commodities including all electronic, electrical goods, construction material, furniture and also goods of daily use like soaps and detergents. VAT on these products would be hiked by half per centage point from 13.5 to 14 pc.

Says B T Manohar, Chairman, State Taxes Committee, FKCCI: “It is wrong to infer that additional tax would bring in higher resources. All our neighbouring states have retained one per cent VAT on jewellery. There is bound to be diversion of trade because of this hike.”

The 0.5 per cent hike in the 13.5 pc VAT slab will translate to a sizable amount on high value goods. If you are planning to buy a car worth Rs five lakh, the 0.5 pc hike will translate to Rs 2,500.

It was only last year that the State government decided to shift to higher Value Added Tax (VAT) slabs to mop up additional resources. VAT rates were hiked from 12.5 per cent to 13.5 per cent and four per cent to five per cent resulting in customers paying more on every purchase.