With elections in the offing, govt unlikely to hike taxes

VAT increased for two consecutive years

Chief Minister Jagadish Shettar, who also holds the finance portfolio, is unlikely to hike taxes on purchases and excise duties on liquor for the financial year 2013-14 as a “feel good factor” ahead of the Assembly polls.

The State government had affected a mid-year increase in value added tax (VAT) slabs from 14 per cent to 14.5 per cent and five to 5.5 per cent to help mobilise additional resources of Rs 1,000 crore for drought relief. The proceeds went to fund the crop loan and interest waiver scheme for farmers.

Moreover, the BJP government had increased the VAT slabs for two consecutive years in 2010-11 and 2011-12. With Assembly elections just round the corner, Shettar is unlikely to tinker with VAT slabs.

According to sources in the Finance department, the State government is “thinking” of reducing sales tax on petroleum products, especially diesel by 0.75 percentage points. This converts to diesel costing approximately 50 paise cheaper per litre. A similar cut on sales tax on diesel was announced by the government last year.

The State has kept auto fuels out of the VAT regime and charges sales tax at 26 per cent and 16.75 per cent on petrol and diesel respectively. In addition, a five per cent entry tax is levied on every litre of petrol or diesel coming into the state. In Karnataka, state taxes on fuels are ad valorem and move in proportion with any rise in petroleum prices. 

Sales tax on petrol and diesel fetches the government around Rs 4,700 crore per annum. The rebate on diesel, if implemented, will cost the exchequer Rs 280 crore, the sources said.

With price of rice sky-rocketing, the government is likely to continue exempt tax on the commodity. Besides rice, wheat, pulses and products of rice and wheat are also likely to be exempted from levy of VAT, the sources said.   

Excise duty on liquor is likely to remain untouched for the financial year 2013-14. In other words, prices of liquor, beer and wine will go up only if the manufacturer decides to increase the selling price.

The reasons are two fold. One, the Excise department is on a high as liquor sales have soared over the last few years. The revenue mobilisation by the State Excise department has more than doubled over the last five years - from Rs 4,800 crore in 2007-08 to Rs 9,800 crore at the end of March 2012.

The department is all set to meet its budgetary target of Rs 11,200 crore this fiscal ending March 31.

Secondly, the department officials point out that any increase in excise duty rates could be detrimental as it would encourage smuggling of liquor into Karnataka from neighbouring states and also spurt manufacture of illicit liquor.

Further, the government had announced hike in additional excise duty (AED)  on Indian made liquor (IML) during the last two consecutive years.