VAT hike will not have effect on existing stock

However, it will take some time before the pinch is felt by the common man as dealers and manufacturers cannot pass on the hike in the VAT rates on to the consumers on existing stocks, point out officials of the commercial taxes department.

“Just because the VAT slabs have been hiked, dealers cannot sell goods above maximum retail price (MRP). If the manufacturer wants to pass on the hike to the consumer, it can be done by incorporating the higher tax component only on fresh stocks,” officials said.
In other words, the dealers will have to absorb the hike till the existing stocks are exhausted.

However, small and medium dealers are spared as most of them have opted for the “composition scheme” wherein they pay one per cent tax on their turnout irrespective of the VAT slabs.

Cars, bicycles to cost more

The packaged products cannot be sold above MRP. However, motor vehicles and bicycles, which do not have an all-India MRP, will cost more overnight, the officials added.

Resource mobilisation

Faced with loss of realisation of revenue target for the year 2009-10, the state government has decided to shift to higher VAT slabs. An announcement to the effect was made in the budget proposals for 2010-11 presented on March 5. The higher VAT slabs will result in an additional resource mobilisation of Rs 1,480 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. VAT is imposed on practically every commodity you purchase - from medicines to electronic goods, from motor vehicles to IT products, from readymade garments to edible oil and from cement to timber.

The hike in VAT slabs has not gone down well with trade associations. B K Goyal, secretary, Federation of Trade Association of Central Bangalore feels the hike will be detrimental to the interest of the state.

“Hardware for instance will now be taxed at 13.5 per cent, while it is four per cent in neighbouring states. Manufacturers will buy hardware from the neighbouring states at four per cent and bring the goods to the state paying two per cent entry tax and still benefit at the cost of state traders”, he points out. Prices of only a few items will come down.

Chief Minister B S Yeddyurappa in his budget proposals had announced a cut in VAT rates from 12.5 to 5 pc on school bags (costing below Rs 200), masala powder, mixtures, marconi 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.

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