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If Modi-Sonia GST Bill talks fail, state may increase VAT
December, 02nd 2015

Be ready to pay more indirect taxes if the Goods and Services Tax (GST) bill talks between Prime Minister Narendra Modi, former PM Manmohan Singh and Congress president Sonia Gandhi fail. The state may consider increasing VAT on some highly used commodities in the next fiscal if the GST bill is not cleared in the Rajya Sabha soon.

Following the defeat in Bihar assembly polls, the Modi government is trying hard to convince the Congress to help it pass the GST bill in the Rajya Sabha, where the BJP is in minority. In the 245-member Rajya Sabha, the ruling BJP has only 65 members. The GST bill was cleared in the Lok Sabha in May despite a walkout by the Congress.

The BJP was expecting to impose the new GST system in the state by August 2016. "Now, we may have to think of another tax option if GST does not get the approval," said a senior minister in the state government.

Taxation experts in the state's finance ministry can consider three options. "First being to raise value-added tax (VAT) from the existing 12.50% to 14.50%, which will be same as other states. Secondly, the state could select 10 to 15 highly consumed commodities, which earn the highest revenue for the government, and increase VAT on them until the GST bill is cleared. The last option could be increasing the existing 5% VAT on about 116 different products and commodities to 12.50% to make up for the revenue," said an expert.

The BJP had promised before assembly elections to scrap the LBT. When it came to power, expecting GST to come into effect, it scrapped LBT in all 25 corporations, except Mumbai, from August 1. Mumbai is the only corporation which still has an octroi system in place as it is the BMC's key source of revenue. Last year, Mumbai's octroi collection was Rs 7,000 crore and it increases by 12-15% every year.

The state has to reportedly give Rs 4,200 crore stamp duty collection to the 25 corporations as compensation for scrapping the LBT.

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