Special Additional Tax Likely In Some States

Following the implementation of the value-added tax (VAT) regime in the country, some states are likely to impose a special additional tax (SAT) on select items, which will not be eligible for set-off under the VAT system.

Many states which have high tax rates or have a multiple incidence of taxation will face a loss of revenue if they levy the proposed 10 per cent uniform floor rate on a majority of commodities.

These states are likely to take recourse to imposing an additional tax to shore up the effective tax rate on most commodities at over 10 per cent, government officials involved in the changeover to the value-added tax regime, said.

Under the value-added tax regime, in addition to a short list of exempted commodities, a low rate of 4 per cent has been recommended on certain essential goods, uniform for all states.

Most of the other commodities, across all states, are expected to impose a uniform floor rate of 10 per cent, an official said.

The floor rate of 10 per cent proposed for a majority of commodities, will be adequate for states like Delhi, Uttar Pradesh, Himachal Pradesh and other northern states to maintain revenue-neutrality vis-