People will have to shell out more

You will be shelling out one rupee purchase of every Rs 100 worth of goods from April 1 with the state government deciding to hike Value Added Tax (VAT) slabs from 12.5 per cent to 13.5 per cent and four per cent to five per cent.
Faced with loss realisation of revenue target for 2009-10, the State Government has decided to shift to higher VAT slabs.

The state government’s largest revenue grosser - Commercial Taxes department - is projected to face a shortfall of Rs 2,625 crore for the fiscal 2009-10. The higher VAT slabs will result in an additional resource mobilisation of Rs 1,480 crore. The target set for the year 2010-11 is Rs 22,500 crore.

The one per cent hike may seem minuscule. But consider this. The hike in VAT slabs will result in you paying more on every purchase every day as the tax targets purchases.
So you will be not only paying more while purchasing a Rs five-lakh car (the hike will be Rs 5,000) but also when you buy your groceries.

Contract works
That’s not all. Contract works too will cost more too. Various contract work like plumbing, painting, fabrication or structural work come under VAT schedule under the four percent slab. This schedule has now be hiked to five percent.
However, prices of 16 “declared goods” will remain the same as state government are not authorised to change VAT slabs for these items. These include coal, cotton, iron and steel, oilseeds, crude oil, yarn etc.

Prices of only a few items will come down. Chief Minister B S Yeddyurappa in his budget proposals on Friday announced a cut in VAT rates from 12.5 percent to five percent on school bags (costing below Rs 200), masala powder, mixtures, macaroni similar to wheat based vermicelli, trophies, shields, medals used as prizes, all kinds of scrap items, electricity generators up to a capacity of 15 KV.
 Presently, VAT system in the state covers 550 goods with two basic rates of four percent and 12.5 percent and a special VAT rate of one percent only for gold and silver ornaments.

4 pc VAT rate category
Under four percent VAT rate category, there are 270 commodities, comprising items of basic necessities such as medicines and drugs, all agricultural and industrial inputs, capital goods and declared goods. 

 The remaining commodities, including all electronic goods, furniture, detergents, soaps, toothpaste, cement, timber comel under the general VAT  rate of 12.5 per cent.
As many as 54 commodities comprising natural and unprocessed products in unorganised sector like fresh milk, meat, seeds, which have social implications which are exempted.  
Generally, VAT rates are changed only by the Empowered Committee (EC) of State Finance Ministers.

But the Committee has now given a free hand for States to shift to higher VAT slabs. Several States including Gujarat, Rajasthan, Punjab, Uttar Pradesh, Assam, Andhra Pradesh and Delhi have shifted to higher VAT slabs to mop up additional resources.
Petrol and diesel still come under sales tax and prices of these fuels will not be affected by change in VAT slabs.

Hotel rooms to cost more
Stay in hotel rooms will cost more from April 1.
The State Government has increased the luxury tax rate from 6 to 8 percent for hotel rooms rents ranging between Rs 1,000 and Rs 2,000 and from 10 to 12 percent for rooms with daily rent of more than Rs 2,000.
DH News Service

VAT - ups and status quo
No change
Commodities exempted from VAT: 54 items including manually used agriculture implements, books, bread, charcoal, fresh milk, vegetables, fruits, jaggery, meat
Commodities under 1 pc VAT slab: bullion, jewellery
Up
Commodities under 4 pc VAT slab: 100 items including IT products, medicine, processed fruits and vegetables, readymade garments, spices, tea, toys, edible oil, bicycles (prices will increase)
Commodities under 12.5 pc VAT: Electrical and Electronic items, toilet articles, furniture, cement, timber, and all items not under 4 pc VAT (prices will increase)