MP likely to raise entry tax for bidis to 10%

Bidi makers of other states will have a tough challenge in Madhya Pradesh. The state government has sensed potential in their business, touching Rs 100 crore.

The state is likely to raise entry tax on bidis from the existing 2.5 per cent to 10 per cent. In a recent cabinet decision, the state had removed the 4 per cent value added tax (VAT) on bidis.

"As of now we are mulling over raising the tax. It may be put before the Cabinet," a senior government official on commercial tax department told Business Standard.

Bidi makers from other states outperformed their counterparts in MP during 2005-06 in the Rs 235 crore industry. The domestic business touched Rs 35 crore during 2005-06, while the rest of the Rs 200 crore business was outside the state. However, outsiders clocked a sale of Rs 100 crore during the year.

"The government might have planned to mitigate losses due to cut in VAT," said an industry source. The cut in VAT will put a financial strain of Rs 4 crore on state exchequer. The state exchequer gets only Rs 35 lakh from bidi makers as tax.

However, according to the official, an increase in entry tax will protect the domestic industry as well as add more revenue to the state kitty. The expected quantum of the additional revenue through increased entry tax is yet to be calculated. Central government empowered states to impose VAT on bidis by abolishing additional excise duty from April this year.

Presuming that the states will impose VAT on tobacco products, the Central government had decided to compensate the state losses, if any, due to abolishment of additional central excise.

Karnataka, and Gujarat have imposed 12.5 per cent VAT on bidi. Orissa is planning to increase it from 4 per cent to 12.5 per cent. The Chhattisgarh government is also planning to impose VAT on bidi.

The department of commercial tax had also advised the state Cabinet to retain the 4% VAT on bidi. However department of finance had given its nod to go ahead with zero percent VAT on the commodity in view of a decision of Empowered Committee on VAT to put bidi in zero tax slab.