Lower VAT on coffee gets nod

The empowered committee of state finance ministers has approved Karnataka government's proposal to lower value-added tax (VAT) on coffee, Ramesh Chandra, secretary of the panel, said on Wednesday.

The move will bring the commodity at par with tea, which attracts 4 per cent tax, he said. Currently, coffee attracts 12.5 per cent VAT.

"Though we do not encourage levy lower than the rate recommended by the empowered committee, Karnataka can bring down VAT on coffee if it wants to," Chandra said addressing a workshop on VAT, organised by the Federation of Indian Chambers of Commerce and Industry.

While 23 states and Union territories implemented VAT effective from April, 10 states "" including Uttar Pradesh, Gujarat, Rajasthan, Madhya Pradesh and Tamil Nadu - are yet to adopt it.The tax differential under VAT on commodities like tea and coffee created a chasm between states producing the commodities in bulk and those which consume them.

While a number of tea and coffee producing states levied higher taxes under VAT, states like Bihar and Karnataka, which only consume the commodities, wanted lower taxes.

"In our federal structure, it is difficult to have uniformity, especially when VAT has been implemented so recently," he said.

Chandra also expressed confidence that tax collection after VAT implementation will rise significantly.

Tax collection of states and Union territories, which implemented VAT, rose 15.3 per cent in the quarter ended June to Rs 140.51 billion from Rs 121.84 billion a year earlier.