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AAP government presents its second budget, slashes VAT
March, 29th 2016

The Arvind Kejriwal-led Aam Aadmi Party (AAP) government on Monday presented what it termed a "zero-tax" Budget which slashed the value added tax (VAT) on a wide range of goods to bring down prices of consumer products such as green vehicles, expensive watches, readymade garments and shoes.

In a major relief to Delhiites, Deputy Chief Minister of Delhi, Manish Sisodia, who is also the Finance Minister, announced a reduction in VAT from 12.5 to 5 percent on a slew of products which also include sweets, namkeens and schoolbags.

Sisodia increased the outlay in the annual Budget for Delhi to Rs 46,600 crore for 2016-17, which represents a Rs 8,850 crore increase over the corresponding figure of the previous year without levying any fresh taxes which he referred to as a "zero-tax'' Budget.

He claimed that the Delhi government has registered a growth of 17 per cent in 2015-16 due to transparency and honest governance and the lower VAT would increase tax collections due to the rise in voluntary compliance.

Sisodia said the move to simplify VAT by introducing a uniform rate was taken to rationalise tax rates with neighbouring Haryana and Uttar Pradesh.

The watch segment was being subjected to differential tax rates of 12.5 per cent and 20 per cent on the basis of its price slab. It has now been proposed that a uniform VAT rate of 12.5 per cent will be levied on all kinds of watches. The move will encourage people to buy expensive watches from Delhi as it was found that billing in such cases were done from neighbouring states.

Similarly, it has been proposed to levy a uniform VAT rate of 5 per cent on footwear, irrespective of their prices. Tax rate on school bags has also been rationalised by levying a uniform tax rate of 5 per cent. Earlier, a higher tax rate was levied on school bags priced above `300.

To encourage the use of green vehicles, VAT rate has been reduce on battery-operated vehicles such as e-rickshaws and hybrid automobiles to 5 per cent from the current 12.5 per cent.

Marble traders too got a relief with the proposal of reduction in the tax rate from 12.5 per cent to 5 per cent to encourage consumers to buy marble from the capital instead of neighbouring states.

It was also proposed to simplify the tax on textile and fabric which is now covered under several entries in the tax rate schedules, which means some are exempted from taxes while other are taxed at the 5 per cent rate.

"I propose to simplify this system by levying a uniform tax rate of 5 per cent on all variety of textiles and fabrics (including sarees) except khadi and handloom fabrics," Sisodia said in his speech.

At the same time as an environmental-friendly step, it has been proposed to bring plastic waste under the ambit of tax by proposing a 5 per cent levy on it, just like plastic raw material.

Kejriwal said Delhi's Budget is model for all the other states.

"We have not increased burden on the aam admi but have worked on decreasing the tax rates. Still, we expect to generate more revenue in coming year as I trust people of Delhi who will help us in achieving it. No state shares such significant amount of money on public education and health as they want to favour private sector," he said.

For the second consecutive year, the education and health sectors remained the focus. Education was allotted Rs 10,690 crore, or 23 per cent of the total, and healthcare Rs 5,259 crore, a hike of Rs 472 crore over the last year's budget. Taking a dig at the BJP and Congress, Sisodia said, "We are increasing the education budget every year whereas the central government, irrespective of the political party in power, has been decreasing the percentage of budget allocation for education every year."

Kejriwal denied that the populist Budget was to woo voters for municipal election in Delhi or in Punjab, where Assembly elections are scheduled in 2017. "This Budget is our commitment to fulfill our election manifesto," he said.

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