Anomalies and contradictions

Expert opinion

No amount of arm-twisting of dealers or passing of high profile assessment orders or fearsome recovery measures are likely to enable the government reach its target. While the Union blames the high State taxes as cause for rise in fuel prices, the states themselves are left with fewer options but to increase tax rates to meet their budget estimates.

Many states have already increased tax rates on goods during the year. Can Karnataka lag behind? A flat one per cent increase in VAT rates has come at a most inopportune time when industry is on a recovery mode. Resource mobilisation by increasing tax rate (revenue projected at approximately Rs1480 crore) coupled with the increase in tax collection on petroleum products is likely to generate additional revenue of approximately Rs 2,250 crore.

Increasing the rate of luxury tax by two per cent and announcing sops for the tourism sector appears contradictory.
Trade and industry would have been benefited had the Karasamadhana Scheme been extended to dealers under the KVAT Law.

The budget mobilisation estimate of Rs 22,500 crore through commercial taxes alone is ambitious, considering that revised estimates would be around Rs 18,500 crore. This implies an approximate increase of Rs 4,000 crores over the current year. One only hopes that trade and industry will not be squeezed to achieve this revenue target.
Trade and industry expected rationalisation of taxes in the construction and IT sectors which suffer the incidence of both the service tax and VAT. On the contrary circulars,  notifications are issued from time to time, adding insult to injury.
It appears that the government is milking the automotive sector encashing on the increased sales by raising the rate of MV Tax substantially.

The Finance Minister has announced a large number of projects / plans with meagre outlays. The fiscal deficit is burgeoning. Regional imbalances have to addressed if the State is to witness a booming economy again. One can only infer that while Bangalore gets the lion’s share of the pie because the local elections are round the corner. Can the politician be ever wrong?

(The author is a chartered accountant and Chairman, State Taxes Committee, Bangalore Chamber of Industry & Commerce)