The Hindu : New Delhi News : Fuel, liquor to become costlier under VAT

Online edition of India's National Newspaper
Friday, Jan 07, 2005

New Delhi

New Delhi

Fuel, liquor to become costlier under VAT

By Sujay Mehdudia

NEW DELH, JAN. 6. Although the introduction of the Valued Added Tax (VAT) system is expected to bring down the incidence of evasion considerably, but it will have an adverse impact on the prices of diesel, kerosene, petrol, eco-friendly CNG, other petroleum related products, rice, pulses and other such essential commodities which are likely to shoot up when the new tax regime comes into effect from April 1.

Insiders in the Delhi Government informed that the cost of petrol, diesel and other petroleum related products is likely to increase as the dealer would have to shell out more under the new VAT regime. For instance, if the margin of profit of the petrol pump operators is Re. 1, then the dealer will have to pay 20 paise as tax or he will have no other option to enhance the cost. Officials feel that dealers across the Capital are likely to pass on the increased cost to the consumers thereby making diesel, petrol and other petroleum related products more expensive. Incidentally, the Delhi Government is presently taxing petroleum products at 12 per cent and its attempt to raise the incidence of taxation to 20 per cent was strongly opposed by the petrol pump dealers following which the Government withdrew the hike. However, it is expected that with the new regime in place, the rate of taxation will be hiked to 20 per cent to bring in more revenue to the Delhi Government.

As against the present regime of three slabs of 4, 8 and 12 per cent, under the new regime it is proposed to have two rate tax system. For essential commodities the rate will be 4 per cent and the general rate will be 12.5 per cent. A number of commodities will also be taxed at a special rate of 1 per cent and 20 per cent. However, a number of commodities that are defined as essential and attract low or no tax at all will fall under the purview of 4 per cent or 12.5 per cent slab in the new regime. This is something that is bothering the Delhi Government a lot. "We are in discussion with the Empowered Committee on VAT to ensure that some essential commodities like rice and pulses that will fall under the 4 per cent slab and also CNG that does not attract any sales tax at present are exempted from paying any tax under the new regime," the Finance Minister, A.K. Walia, revealed.

As for liquor, the opinion is that it should be taxed at subsequent points as the value addition is more and the collection of tax is easier. Similarly, narcotics, molasses, rectified spirit, lottery tickets and aerated drinks will be taxed at the special rate of 20 per cent. Officials conceded that some of the essential commodities consumed by the poor could come under pressure under the VAT system but added that the Government was working on seeking exemption for such commodities.

For its part, the trading community is strongly opposing the new tax regime stating that it would make it difficult for the common man.

According to Federation of All India Traders Association present, Naren Bikhu Ram Jain, apart from having an inflationary effect, the new regime would make goods consumed by the common man expensive.

The most adversely hit would be bread, salt, spices, pulses, food grains and other related times will come under the 4 per cent tax slab and presently attract no tax.

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