The Delhi government's budget for 2016-17, to be tabled in the Delhi assembly on Monday, is likely to steer the capital towards becoming the state with the lowest value added tax regime in the country.
The budget provides the Aam Aadmi Party government the opportunity to initiate the process of rationalising the VAT rates that could enhance tax compliance to offset any revenue loss arising from low VAT rates. The rejigging of items in the current six-layered VAT structure will also make for streamlined tax collecting operations.
The Delhi government is likely to move some items of common use currently attracting 12.5% VAT to the 5% category. Such items at present include meals in restaurants, marble tiles and bathroom fittings for homes. Also, the government plans to standardise to a single rate the varying rates that are currently levied on some items such as garments and shoes.
However, an item or two under the "exempted" category may be now be pushed into the 5% tax slab.
The existing VAT regime in Delhi is a six-layered structure. Schedule 1 includes exempted items such as CNG, PNG, rice and wheat. Bullion and other items in the second schedule attract VAT of 1%m, while items used on an everyday basis, including shoes and garments costing below Rs 5,000 and cell phones priced at under Rs 10,000, are taxed at 5% under Schedule 3. The fourth schedule levies VAT at the rate of 20% on luxury items such as branded watches and premium alcoholic and non-alcoholic beverages. The fifth schedule items, taxed at 12.5%, include food in a restaurant and hardware. There is a separate schedule for petroleum and diesel products and aviation turbine fuel with VAT ranging from 18% to 30%.
As part of the VAT rationalisation, the government plans to track and bring unregistered dealers and commercial tax evaders into the tax net. It proposes to use digital data from the official Geospatial Delhi Limited and other government departments to identify dealers and locate their official addresses on maps of markets and commercial areas. The mapping will also be used to reach out to traders who are not registered with the VAT department by comparing digital data with ground records with the relevant departments.
All the signs of a successful and people welfare oriented government. I hope people sit down and compare this with Central Government policies and budget of economic tyranny on Middle Class.
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In its election manifesto, AAP had incorporated three-point plan for streamlining the tax system in Delhi. It had promised that by simplifying the system and taking the entire taxation and licensing procedures online, it would ensure that the capital would have the lowest VAT rates in India.
Meanwhile, Delhi's VAT collections in the current fiscal have crossed Rs 20,000 crore, just short of the revised target of Rs 21,000 crore and much higher than last year's collection of Rs 18,500 crore.