State Budget may raise base VAT rate to 5%

The State Budget for 2012-13 may witness hike in base VAT (value added tax) rate from four per cent to five per cent, taking cue from neighbouring states like Andhra Pradesh which have already raised the VAT rate.

Though two attempts made earlier to raise the base VAT rate have been turned down by the Chief Minister's office, there is a strong possibility of revision in the rate that is going to be reflected in the Budget.

“Its true that the finance department's recommendation for increasing VAT rate have been rejected twice. However, the upcoming State Budget may see the rate going up as the proposal is being actively considered at the highest level of decision making,” said an official source.

It may be noted that the Hota committee, an expert committee formed by the state government to suggest revenue enhancement measures, had recommended raising of base VAT rate from four per cent to five per cent.

The state finance department in December had announced restructuring of VAT rates while leaving the base rate untouched.

The tax rate on tobacco products was raised from the existing 13.5 per cent to 25 per cent, a move that is set to enrich the state exchequer by Rs 50 crore per annum.

Apart from raising VAT on tobacco products, the state finance department had also decided to lift input tax credit on coal used by thermal power plants. Following lifting of credit, the department hopes to gain Rs 50 crore per year.

It was also decided to raise VAT rate of cellular handsets costing Rs 5,000 and beyond from four per cent to 13.5 per cent.

The items on which the state finance department had eased VAT rates include excavators, bulldozers, back loaders, glass sheets, plywood, laminated sheet, particle board and structural steel. These products would now be levied VAT at the rate of four per cent from 13.5 per cent.

The State Budget was to be presented on February 24. The Budget outlay was pegged at around Rs 52,000 crore, 15.8 per cent higher than total outlay of Rs 44,878.97 crore of the previous fiscal.

Plan expenditure has been fixed at Rs 17,200 crore, 12.53 per cent growth over Rs 15,284.69 crore of 2010-11.

Non-Plan expenditure has been projected at Rs 35,517 crore, 20 per cent higher than Rs 29,594.25 crore than the previous Budget.