'Flood tax' on the cards

Proposal includes hiking VAT and sales tax on petrol, diesel

Top bureaucrats have advised Chief Minister B S Yeddyurappa that in order to tide over the financial crunch that the State was faced with in mitigating flood-related losses, the government could resort to various forms of levies.

These could include an increase in tax rates for goods and commodities now within the tax slab of 12.5 per cent under VAT. The bureaucrats’ proposal is to increase the ceiling from 12.5 per cent to 13.5 per cent by amending the relevant schedules under the VAT Act.

Yeddyurappa, who concurrently holds the finance portfolio, has also been advised that he has the option to increase sales tax on petrol and diesel. The present sales tax on petrol, which is 25 per cent, could be raised to 28 per cent, and the tax on diesel, which is 18 per cent, may touch 20 per cent.

The new rates may come into effect from November 1. The measures being proposed may bring an additional revenue of about Rs 1,500 crore to the State exchequer.

According to government sources, a direct tax or cess on income is not being contemplated because such a step would require clearance from the Centre. The State government has the authority to take recourse to hiking tax rates under VAT and sales tales tax on fuels rather than imposing a cess exclusively for calamity relief.

The State secretariat is not prepared to disclose the details now on the ground that any move on this front may jeopardise tax collection which has already taken a hit because of the economic recession. Yeddyurappa, sources said, would await the reactions of other political parties and the people before announcing the new tax measures.

The chief minister did, however, disclose that he has plans to levy new taxes to mobilise resources for the flood rehabilitation programme which, according to him, may require as much as Rs 20,000 crore.

In the all-party meeting as well as the State Cabinet meeting on Sunday, the chief minister said it may become inevitable for him to levy additional taxes.
“The government wants to levy new taxes to mobilise resources to undertake rehabilitation work without burdening the common man...The new taxes would be for short duration of six months to one year... It would fetch around Rs 1,000 to Rs 1,500 crore,” he told the all-party meeting.

Predictably, the Opposition parties reacted critically to the chief minister’s proposals. Party leaders said they would take a view on the proposed tax hike once the government formally announced them.


Yeddyurappa told leaders of all the parties that his government was faced with the challenge of completely shifting villages that are flood-prone. According to him, there was a plan to construct nearly 80,000 to 90,000 houses for which the government would spend around Rs 1,000 crore. An additional Rs 300 crore to Rs 400 crore will be required for providing infrastructure facilities.

As per government estimate, each new dwelling unit would cost Rs 1 lakh and repairing a partially damaged house would cost Rs 50,000.

Yeddyurappa said the cost details would be made public for the sake of maintaining transparency. If necessary, the State government, might consider borrowing to meet the challenges posed by the flood in North Karantaka.

The chief minister expressed hopes that the Centre would sanction more than Rs 10,000 crore. The house construction project would require around 4,000 to 5,000 acres of land. For this, land acquisition committees, to be headed by deputy commissioners, will be set up at the district level. If required, the emergency clause under the Land Acquisition Act will be employed to acquire land, Yeddyurappa added.

The dwelling units would follow construction based on a model. Non-governmental organisations would build the units by employing their own agencies. Once constructed, the State Government will allot them to the beneficiaries. Till such time, temporary sheds will be constructed for the affected people, he said.

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