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High VAT hits consumers
March, 20th 2010

The consumers are not king in Andhra Pradesh.Reeling under power cuts,citizens are now also hit by a price rise,thanks to the profligacy of the state government.From the humble glucose biscuit and hair oil to air conditioners and LED televisions,the cost of various goods and commodities has gone up in recent weeks.

And no,this isnt a budget impact but the result of an unprecedented move made by the cash-strapped state government to revise VAT on these products from 12.5 per cent to 14.5 per cent in January this year.

The local VAT of 14.5 per cent is the highest in the country,say tax experts who find fault with the government for resorting to,what they call,a desperate measure to beef up their tax revenue.With the new taxation in place,consumers are paying more for almost all their basic household items ranging from detergents,soaps and deodorants to even utensils,crockery,furniture and consumer durables.

A VAT of 14.5 per cent is also under review for restaurants,even as some joints have already started levying it on customers.What has the industry irked is the surreptitious manner in which the government went about with its tax revision.The government is bankrupt and the only tool it has is tax, says Nitin K Parekh,chairman of the trade and commerce committee of FAPCCI,which had made a representation to the government on January 12 not to revise the tax.

The government issued the revised tax GO on the same day,just before the state government and the city broke for an extended Sankranti weekend.Why was there such a hurry in the middle of the month,just before a festival to do this, questions Parekh.

A senior official,on condition of anonymity,says this was a lazy way adopted by the government to mop up more revenue.Increasing the tax,he said was the most convenient way to deal with its financial crisis,he said.Experts argue that with this move the government would only ensure a rise in tax defaulters,cross border trading of commodities and consumer turning cautious with their spending.

FAPCCIs Parekh says this would only lead to a dip in the states revenue,which had incidentally doubled over the last four years ever since VAT was introduced.

Until the revision,there were two rates of VAT: 4 per cent and 12.5 per cent.While the tax of 4 per cent remains unchanged and covers items like pulses,cereals,rice,drugs and medicines,iron,steel,vegetable oil among others,it is the unlisted products that come in 12.5 per cent bracket,which is now revised to 14.5 per cent.

The unlisted products include just about everything under the sun and it is not possible to list them out, says an official dabbling in taxes.There is another list of 58 items that enjoy complete exemption from tax and these include items like tamarind,jaggery,sugarcane,some spices,unbranded broom sticks among others.

So,what is left are items like all the daily needs of consumers like toothpastes and washing machines,chocolates and ceiling fans.Owners of supermarket chains say that the revised tax is already hitting the bottomlines of FMCG companies,some of which are already revising their MRP for sale in Andhra Pradesh.

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