Traders cry foul over VAT hike

Traders cry foul over VAT hike

Fear diversion of business to neighbouring states

The State legislature hurriedly amending the Karnataka Value Added Tax Act, to hike the 14 and five per cent VAT slabs by 0.5 percentage points, has not gone down well with traders and trade bodies in the State.

Representatives of trade organisations on Saturday were quick to point out that the move would lead to diversion of business to neighbouring states besides burning a hole in the pockets of consumers.

In an almost overnight decision on Friday, the State government decided to increase VAT slabs from 14 to 14.5 per cent and five to 5.5 per cent to mobilise an additional Rs 1,000 crore tax revenue.

The proceeds will be utilised for the loan and interest waiver scheme for farmers announced by the State government. This is the third hike in VAT slabs in the last four years. 

S Venkataramani, co-chairperson, State Taxation Committee, Bangalore Chamber of Commerce and Industry (BCIC), cited an example: “Say a company is set to buy 100 computers at a cost of Rs 36 lakh in Karnataka (including 5.5 per cent VAT). The same brand of computers would be available for Rs 50,000 less in Maharashtra as that state has a lesser tax slab of 4.5 per cent. Why would any company going for bulk purchase buy in Karnataka when the same product is available for a cheaper rate due to lower tax rates in neighbouring states.”

He added that builders would soon start buying construction material including steel and tiles from Jharkhand and Gujarat which impose a VAT of four per cent compared to the 5.5 per cent in the State. 

Lower taxes attractive

“When it comes to bulk purchases, the freight charges to get the goods into the State pale in comparison to the savings made due to lower tax rates,” he said.

B T Manohar Chairperson, State Taxes Committee, Federation of Karnataka Chambers of Commerce and Industries, said the prices of most of the commodities were bound to increase due to the hike in the VAT slabs. 

“Most of the household products come under the five per cent tax bracket, while electronics, electrical, construction and industrial items come under 14 per cent tax slab.

It is bound to affect the common man, due to high inflation,” Manohar said. 

He said the government should have taken traders into confidence before taking the decision. 

Sajjan Mehta, Chairperson, Taxation Committee, Karnataka Hosiery and Garment Association, said the move would have a cascading effect and the net impact on the consumer due to the 0.5 hike would be more than one percentage point. 

“The VAT slabs have already been hiked twice. Friday’s hike is definitely not a moral booster for the trade industry,” he said.

FKCCI President K Shivashanmugam, in a statement, has urged the State government to roll back the increase in VAT rates, in the interest of industry, trade and the common man. 

However, senior officials at the commercial taxes department were not immediately available for comments.

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