KOCHI: The Cochin Chamber of Commerce and Industry has urged the State Government to immediately withdraw the decision to impose value-added tax (VAT) on the maximum retail price (MRP) of packaged commodities. The Government move will be counter-productive, says Jose Dominic, president of the chamber.

He says VAT was introduced in the country to avoid cascading of taxes and foster a common Indian market. By imposing VAT on the MRP, the prices in the State will be more than those elsewhere in the country, he says.

Mr. Dominic says a similar decision in Rajasthan was struck down by the court.

The chamber is of the view that if the first sellers or manufacturers were compelled to levy VAT on the MRP, it will be in violation of the apex court's judgment. Trade prices of most goods in Kerala will be higher than in other States.

This will lead to illegal inter-State movement of goods, which will have an adverse impact on the State's tax collections.

Illegal cross-border trade will affect consumers in terms of availability, freshness of stock and after-sales service. The trade in packaged commodities will pass into the hands of organised criminal syndicates.

It will result in lowering of margins for retailers, who, in turn, will most likely start overcharging consumers to make up the losses on account of VAT.

The current decision is bound to result in a fall of revenue for the State Government, according to Satish Murti, vice-president of the chamber.

In its bid to collect VAT on the MRP, the Government has overlooked the fact that it will amount to VAT being extracted from marginal and small retailers, he says.

The fact that the traders who were obliged to submit their books to scrutiny by the commercial tax authorities, will now come out of VAT scrutiny and also consequently evade other taxes such as income tax, he adds.

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