Punjab reduces VAT on cigarettes, iron and steel

Having hiked the value added tax (VAT) on cigarettes last year to curb sales, the Punjab cabinet Monday decided to reverse the decision and reduced the tax on them.

Under the proposal approved by the cabinet at its meeting held here Monday with Chief Minister Parkash Singh Badal in the chair, VAT on cigarettes was reduced from 50 to 20.5 percent.

Justifying the reduction in VAT on cigarettes, a state government spokesman said: "In a bid to check the smuggling of cigarettes in the state from other parts of the country, the cabinet gave the nod to restore the tax on cigarettes from recently-hiked 50 percent to 20.5 percent (plus 10 percent surcharge).

"This would help in checking the sale of smuggled cigarettes, as the VAT on cigarettes in adjoining states was around 20 percent. It was observed that increase in VAT had not resulted in less sale, but such sales levels met through smuggled cigarettes."

NGOs, health experts and environmentalists had recently opposed the move to reduce VAT on cigarettes.

Following a demand from the state's iron and steel industry, the cabinet also decided to reduce VAT on these products from 4.5 percent to two percent.

"It is estimated that the implementation of new scheme would result in loss of Rs.200 crore approximately to the state, but it would also lead to the revival of iron and steel industry, which had been passing through rough weather for past several years," the spokesman said.

The cabinet also approved the introduction of a "social security scheme for business community" to give insurance cover to businessmen in the state.

"This scheme would cover as many as 186,543 dealers and businessmen, who have a turnover up to Rs.1 crore. However the businessmen, who were covered under any other social security scheme of Punjab would not be eligible for this scheme," the spokesman said.