The Delhi government's proposal to hike value added tax (VAT) from 4% to 5% is seen running counter to the Centre's move to introduce the goods and services tax (GST) in a bid to bring about uniformity in the tax structure.
The Sheila Dixit-led government's announcement came after tax collection for last fiscal came in at Rs 11,175 crore, down from Rs 13,000 crore the previous fiscal.
The one percentage point hike in VAT rate could mean a hit of Rs 1,000 crore more for taxpayers, said All India Tax Advocates Forum (AITAF), a taxation advocacy group.
"It's bizarre that at a time when the central government, run by the Congress, is streamlining the tax structure in favour of the common man, a state government headed by its own chief minister is looking to impose unwarranted burden on the people," AITAF president M K Gandhi said.
In case the Dikshit government succeeds, the price of medicines and over 150 items of daily use, besides IT services, would go up further. The government "must wait for GST," Gandhi said. Asim Dasgupta, the chairman of the Empowered Committee of State Finance Ministers, says the GST regime is the first time a continuous set of relief will be available for tax paid either on inputs or in the previous stage of distributive trade. It starts from the producers or service providers and goes all the way to the retailers.
Several important central and state taxes will be subsumed in the GST. The central sales tax on inter-state tax, which has already been reduced from 4% to 2%, will be totally phased out.