The state government is likely to withdraw five per cent Value Added Tax (VAT) on sugar and textiles announced in the Budget for 2012-13 as protests from traders have mounted, seeking rollback of the move.

The All Odisha Textile Cloth Merchants' Association (AOTCMA) went on strike on Friday and also staged a rally in the city in protest against the governments decision to impose five per cent levy on textile fabrics and sugar.

The association members have submitted a memorandum to the state finance minister Prafulla Chandra Ghadai, demanding withdrawal of VAT on the two items.

The finance minister has assured us that he will take the matter seriously after receiving the memorandum from us. He has asked the association not to go on strike, said Shyam Sundar Aggarwal, President, Bhubaneswar Textiles and Garment Merchants Association.

The association has threatened to go on strike from Saturday evening if the government does not withdraw the VAT on textiles and sugar which was to be effective from April 1.

Protesting the decision of the state government to impose VAT at the rate of five per cent on textiles and sugar, traders in the state have threatened to stop imports of all essential commodities from neighbouring states with effect from April 1.

In the Budget for 2012-13, the state government has hiked base VAT rate from four per cent to five per cent while imposing five per cent levy on textile fabrics and sugar.

While the hike in base VAT rate to five per cent was to generate additional revenue of Rs 400 crore per annum, the finance department expected to mop up Rs 130 crore on levy of five per cent VAT on sugar and textiles.