Double taxation on liquor

Double taxation on liquor

State gears up for implementing goods and services tax 

Come March 1, liquor served in bar and restaurants, clubs, lodging houses and star hotels in urban areas will cost more.

For the first time in the State, Value Added Tax (VAT) at 5.5 per cent is being imposed on liquor, a move that will fetch the  State exchequer an additional Rs 200 crore per annum.

Presenting the State budget proposals, Chief Minister Siddaramaiah said the present system of excise duty on liquor is unable to capture the value addition that takes place in the retail sale of liquor in bars and clubs.

Financial experts point out that the move amounts to double taxation on a product –  excise duty and VAT.  Siddaramaiah said VAT on liquor is already being imposed in other states.

To prepare the ground for introduction of Goods and Services Tax (GST) regime that envisage higher threshold for registration, Siddaramaiah announced that the ceiling for registering with the commercial taxes department will be increased from Rs 5 lakh turnover per year to Rs 7.5 lakh. The move is likely to help small dealers.

Siddaramaiah has continued tax exemption on paddy, rice, wheat, pulses and products of rice and wheat for one more year. The only product where VAT has been reduced is on areca nut powder (from 14.5 to 5.5 per cent).

Room rent on hotels costing less than Rs 750 per day will cost less, with the government deciding not to impose luxury tax.

However, Siddaramaiah has decided not to roll back the VAT slabs to 5 and 14 per cent. In other words, there will be no change in  tax on purchases of commodities. VAT slabs have been increased from 5 to 5.5 per cent and from 14 to 14.5 per cent in August 2012 for a period of one year. The government had hiked the slabs in a bid to mobilise Rs 1,000 crore for drought relief.

Sources in the commercial taxes department said that the rollback would benefit only the manufacturers and not consumers.

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