VAT compliance likely to bring down prices

A lower tax regime for most commodities under the value-added tax (VAT) regime and a mere 20 per cent scrutiny of returns filed under the new tax structure (that thus far saw a scrutiny level of 60 to 70 per cent) is expected to result in lower prices and a self compliance thrust among industries in Maharashtra.

A base rate of 12.5 per cent applicable on most fast moving consumer goods (FMCG), areated drinks, cement, building materials and machinery, which under the Bombay Sales Tax (BST) Act attracted between 15.8 per cent and 20 per cent, is expected to pull down prices of these commodities.

Further, medicines, paper and printed matter, which under the BST Act attracted 9 per cent, 8 per cent and 13 per cent respectively, will now enjoy a subsidised rate of 4 per cent under VAT in Maharashtra.

A senior government official told Business Standard: "In the first year of VAT, we expect to reduce the scrutiny rate from the current 60 to 70 per cent level to around 20 per cent. This will be further reduced to 4 to 5 per cent as witnessed in assessments filed under the Income Tax (IT) administration today."

However, turmeric, flour of cereals and pulses, chilly powder, jaggery, tamarind, coconut and processed salt that attracted a nil rate of tax under the BST Act, will have now to bear a 4 per cent subsidised rate of levy under VAT.

On the flip side seven other commodities "" areated drinks, cooking ranges, cosmetics, microwave ovens, vacuum cleaners and washing machines "" that attracted a high rate of 20 per cent under the BST Act, the VAT base rate will spell a reduction in prices.

Under VAT building materials, cement articles, air conditioning plants, deep freezers, lighty diesel oil, lubricating oils, machine tools, machinery and oil engines will now attract a 12.5 base rate of tax against the earlier 15.8 per cent to encourage industry.

Similarly, consumers are expected to benefit from the base rate becoming applicable to a host of commodities and products such as adhesives and gums, air conditioners, air coolers, bakery products, chinaware3, clocks and watches, cookware, kitchen ware, appliances like mixers, grinders, irons, hair driers, heaters, toasters, boilers and geysers.

The BST rate of 15.8 per cent has also been reduced on electric fans, air curtains, air circulators, dry cells and batteries, fish and meat sold in sealed containers, food stuff and food provisions, furniture, generators, glassware, ice cream, laminates, non alcoholic beverages, fruit juices, paints, radios and transistors, razors, refrigerators, rubber goods, sanitary ware, soaps and detergents, stereo and hi-fi amplifiers and speakers, suitcases, briefcases, moulder luggage, tape recorders, televisions, timber, toothpaste and tooth brushes, typerwriters, tyres and tubes, vaccum flasks, water coolers, water filters and weighing machines.