The Assam governments decision to increase VAT by 1 percentage point on items subjected to 4% and 12.5% tax under Schedule II of the VAT Act has come under attack both from the opposition and industry bodies.

VAT on items like bicycles, aluminum utensils, bamboo products, medicines, sewing machines and several others has increased from 4% to 5%. However, VAT on declared goods would remain at 4%.

Sources in the state government said that around Rs 130 crore additional revenue will be generated by the hike.

The main opposition party, Asom Gana Parishad (AGP), has lambasted the government for this move. The Federation of Industry and Commerce of the North Eastern Region (FINER) also feels this move will be counter- productive.

FINER, in a statement, said it was shocked and strongly resented the arbitrary increase in VAT rates in the latest notification issued on 31.10. 2009 by the Assam government.

In these times of global economic slowdown, which has affected every segment of the economy, and with national governments across the world and the Government of India taking focused measures to fight this slump, this step by the state government is totally uncalled for, unwarranted and against the prudential norms of economics, FINER added.

FINER chairman R S Joshi said: "When the economy of Assam actually needs a stimulus package to spur growth, the government of Assam has done just the opposite by announcing the hike in tax rates without taking into confidence stakeholders/people of the state.

This step does not augur well and will further add to distortion of uniform rate of tax regime and may also result in diversion of some trade to neighbouring states. We strongly feel that these notifications need to be withdrawn forthwith."