The proposed increase of 1% in  value added tax (VAT) on some consumer durables in the state from April 1 will have a negative impact on revenue augmentation of the government as customers are likely to prefer purchasing these goods from neighbouring states, a traders' body stated here on Sunday.

After the VAT hike, refrigerators, washing machines, ACs and four wheelers will be cheaper in neighbouring states of AP, Bengal and Chhattisgarh. Moreover, no entry tax is collected in these states, while in Orissa, a 2% entry tax is levied.

"With a 1% increase in VAT as proposed in the state budget, the tax disparity on durable goods between Orissa and its neighbouring states will widen to about 3 %.

The cost of the concerned items will be more here than other states," said president of Ganjam District Chamber of Commerce (GDCC), Ch Rabindra Nath.

He urged the government to reconsider the proposal and ensure tax equality with neighbouring states.

"If this hike is implemented, customers would prefer buying these items from nearby towns in adjoining states. With a fall in sale of goods, the government's aim of higher revenue generation will fall apart, resulting in losses," said Kumar.

In Orissa's 2011-12 budget, finance minister Prafulla Ghadei announced a 1% rise in VAT on several consumer durable items. From April 1, VAT on these items would be increased to 13.5 percent from 12.5% now. The government aimed to generate an additional `150 crore from the move.

"Our business will be affected in a big way when the proposed hike in VAT is implemented," said a Berhampur-based dealer of a car company.