Contrary to the state government’s claims, the proposed increase of value added tax (VAT) in some of the consumer durables in Orissa is likely to have negative impact on revenue augmentation plan as this move may lead to shifting of business to neighboring states where the tax rates are cheaper.
The Orissa government, as part of its budget proposal for 2011-12, has decided to increase VAT rates on items, mostly consumer durables, in the 12.5 per cent slab by one per cent with effect from April 1.
As a result, items like refrigerators, washing machines, air conditioners and four-wheelers will be costlier in Orissa compared to neighboring states like Andhra Pradesh, West Bengal and Chhatisgarh. Moreover, there is no entry tax in these states, while Orissa is collecting entry tax at the rate of about 2 percent.
“The one per cent VAT hike along with entry tax will widen the tax gap between Orissa and its neighboring states on consumer durables to about 3 percent, making these items costlier in the state”, said president, Ganjam district chamber of commerce (GDCC) Ch. Rabindra Nath.
He urged the government to reconsider the proposal of VAT rate hike and maintain it at the same level as the neighboring states.
“The customers will prefer to procure these items from nearby towns of the adjoining states rather than buying them within the state. With business shifting across the border, the government’s plan to mobilize Rs 150 crore additional revenue by this measure will not be fulfilled”, Nath said.
“Our business will be affected if the proposed VAT hike is implemented” said a Berhampur based dealer of a car company. The dealers particularly in the bordering towns like Berhampur fear to suffer because of tax disparity between Orissa and neighbouring states.
The traders, however, hailed the government move to exempt the prevailing one percent entry tax levied on food items like onion, garlic, ginger, potato, egg, fish, fruits cattle feed and several other essential items. With this measure, the government hopes to reduce the prices of the essential commodities though the move is expected to cause a revenue loss of around Rs 25-crore annually.