Poor tax collection: VAT slab likely to be altered

Commercial Taxes Department falls short of budgetary target

Despite an improvement in the economic scene, the slump in the manufacturing sector coupled with low sales in the market is likely to bring down the revenue by Rs 2,000 crore against the annual target of Rs 20,125 crore for the financial year 2009-10.
The department has managed to mop up Rs 14,409 crore by the end of January. With just six weeks left for the end of the present financial year, the department is banking on last minute collections of dues and arrears to edge towards the target.

Given the shortfall, it will be tempting for Chief Minister Yeddyurappa, who also holds the finance portfolio, to bring about changes in the Value Added Tax (VAT) slabs.
By and large, VAT rates are modified 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 tax 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. Any change in the slab will result in prices of practically every commodity going north.

Presently, VAT regime in the State covers about 550 goods with two basic rates of 4 per cent and 12.5 per cent, and a special rate of one per cent only for gold and silver ornaments. As many as 46 commodities comprising natural and unprocessed products in unorganised sector, which have social implications come under the exempted category.  Under four per cent slab, 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 fall under the general VAT rate of 12.5 per cent.

The State government during the last budget exempted rice, paddy, wheat and produces of rice, wheat and pulses from VAT. Despite the fact that the Centre does not compensate for items for which the state has deviated from tax slabs fixed by the EC, Yeddyurappa, in the wake of spiralling price of food grains is likely to continue the tax exemption.

The hike in petrol and diesel prices by the Centre has resulted in the State government coming under pressure from various quarters to lower the sales tax component to lessen burden on the common man.

However, any cut tax rates is unlikely. The sales tax on petrol and diesel is the major source of revenue for the State government. State taxes on fuels are ad valorem.  Any rise in petroleum prices automatically increases the cash flow to the state exchequer.
More than Rs 4,000 crore is expected to be mobilised from sales tax on these two commodities alone during the fiscal.  Given the fund cruch, any additional cash flow is bound to be welcomed with open arms by the state.
DH News Service