The State Cabinet's decision to raise base rate of Value Added Tax (VAT) from four per cent to five per cent paralyzed proceedings of the state assembly on the second day of the ongoing Budget session.

Irate Opposition legislators went on a collision course with the treasury benches over the VAT rate hike, forcing the speaker Pradeep Kumar Amat to adjourn the house repeatedly.

Even Amat's effort to break the deadlock by convening a meeting of senior leaders of all political parties proved to be futile as no consensus could be arrived at.
Bhupinder Singh, leader of the Opposition, alleged that the VAT rate hike was effected to offset the expenses incurred by the ruling Biju Janata Dal (BJD) in the panchayat polls that ended February 19.

Flaying the government for its decision to levy VAT on sugar and textiles, Singh said, The move is going to hit the common people hard towards whom this government has no responsibility. This is an insult to the Vidhan Sabha and murder of democracy.

The state minister for parliamentary affairs Raghunath Mohanty sought to placate the Opposition stating that the government was not averse to discussion on any issue on the floor of the house.

However, Congress MLAs trooped to the well, blaming the government for its decision.

The hike in base VAT rate by the state government which is going to be reflected in the State Budget for 2012-13, is expected to generate additional revenue of Rs 400 crore annually. Besides, the levy of VAT on sugar and textiles will net another Rs 130 crore. It may be noted, the state government had set a target of Rs 2,000 crore VAT collection in the current financial year. The rate increase follows the recommendation of the Hota committee to this effect. The expert committee was formed by the state government to suggest revenue enhancement measures.

According to estimates of finance department, imposition of VAT on sugar is set to generate Rs 25 crore whilst that on textile fabrics is going to mop up Rs 105 crore.

The state government had imposed four per cent VAT on these two products last year. But it had to withdraw the levy following intense pressure from the agitating traders.