BHUBANESWAR: In a new year gift to the people of Odisha, the state cabinet today approved a proposal to hike VAT rate on luxury items from 13.5 percent to 14.5 percent which will lead to increase in the prices of items like television sets, two wheelers and washing machines used by the common people.
Besides, a decision to increase VAT on all foreign liquor, whether made in India or not, from 25 to 35 percent was also given the go ahead. The hike, to be effected to mobilise additional resources for the state, will generate an revenue of Rs 420 crore.
While the hike in the luxury items will fetch Rs 280 crore for the state exchequer, increased tax on foreign liquor will generate Rs 140 crore per annum, chief secretary AP Padhi after the cabinet meeting which was presided over by chief minister Naveen Patnaik. Other items whose prices will increase following the decision include air conditioners, air coolers, four wheelers, plant machineries, equipments and cement. Goods not in Part-I and II of Schedule B and Scheduled C of the Odisha VAT Act are in Part-III of the Schedule B on which the increased VAT rate will be imposed.
The chief secretary said that the proposed tax rate on these items under the Goods and Services Tax (GST) to be introduced shortly in the entire country will be around 15 to 16 percent. Keeping this in view, the Centre has already enhanced the rate of service tax from 12.36 percent to 14.5 percent in the Finance Act, 2015-16. Several other states including Andhra Pradesh, Telengana, Gujarat and West Bengal have increased VAT rate on these goods to 15 percent while the tax rate on these items in Karnataka, Rajasthan, Tamil Nadu, Kerala and Punjab is 14.5 percent.
The chief secretary said that hike in tax on liquor is for larger social benefit. Since liquor is adversely viewed from the health point of view and is treated as a demerit good, increase of tax is for larger social benefit, he said. The cabinet also decided to authorise the finance department to enhance VAT rate on petrol and diesel as and when necessary with the approval of the Chief Minister without first clearing it in a cabinet meeting. The chief secretary said that because of the gradual fall in the price of crude oil in the international market and deregulation of prices of petrol and diesel, there is a declining trend in the prices which affected VAT and entry tax collection adversely resulting in decline in revenue generation from these items.
The decrease in collection of VAT and Entry Tax during the year has been Rs 838.16 per KL of petrol and Rs 1334.51 per KL of diesel till December 25 compared to the corresponding period last year. However, the Centre has enhanced basic excise duty, additional excise duty/special excise duty and CESS from Rs 3563.8 to Rs 11830 per KL of diesel as a result of which tax collection has increased by 231.95 percent.
As there is a loss of Rs 417.2 crore on VAT and entry tax, a policy decision has been taken to increase VAT on petrol and diesel as and when the prices of these goods decrease to recoup the loss of revenue, he said.