The Karnataka Small Scale Industries’ Association (Kassia) has urged the state government to reduce the VAT rate for defence supplies to 5.5 per cent to match the competing states.

In a memorandum submitted to Chief Minister Siddaramaiah, who also holds the finance portfolio, Kassia has sought a revision of rates as high VAT rates are hampering Karnataka SMEs in Defence sector procurements.

V. K. Dikshit, President, Kassia, said: “Many of our members who supply components and parts or sub-assemblies to defence organisations are priced out by suppliers from other states, including our neighbouring states, as a result of the 14.5 per cent VAT levied by our State on such supplies as against 5.5 per cent levied by the other competing States.”

“The much higher levy of 14.5 per cent in our state drives up the price so much that we become costlier by 9 per cent as compared to the others,” he added.

As a result of this, Karnataka suppliers will not have the opportunity to supply to the defence sector, which is a large buyer. Needless to say, firms in the State are in no position to absorb the huge tax differential as the margins on such transactions are very tight.

“Many companies which are totally dependent on defence procurements face the threat of closure in the absence of alternatives. We, therefore, request you to take steps to reduce the VAT rate to 5.5 per cent to match the competing states,” Dikshit pleaded.