The hike in value added tax (VAT) announced in the state's 2011-12 budget has become effective from April 1.

Deputy CM Sushil Kumar Modi, who heads the finance and commercial taxes departments, said that the notification in this regard had already been issued by the commercial taxes department. Prior to this, the legislature had passed the Appropriation Bill concerned for the 2011-12 fiscal.

The last time a tax increase had been made in the state was on April 1, 2006.

Modi said the tax hike would yield an additional Rs 450 crore annually to the state exchequer, which would be used to support welfare schemes, including the CM's Cycle Yojana and CM Poshak Yojana.

Incidentally, the report of the Comptroller and Auditor General of India (CAG) for the 2009-10 fiscal, released last week, had noted that the state government ought to find means to increase its revenue receipts through both tax and non-tax routes, if the state does not have to get caught into debt trap.

The CAG's advisory meant that the debt incurred by the state should be sustainable. In this context, the tax hike announced in the 2011-12 state budget gains contextual significance and relevance with the fiscal situation, as assessed by the CAG.

In keeping with the rise in taxes, VAT on some Schedule-3 items has been increased from four to five per cent, while the tax charged on items like motor vehicles, TV, fridge, cosmetic items, zarda and cigarette would now be 13.5% compared to 12.5% earlier. Besides, the new 10% luxury tax charged for holding functions (conferences, workshop, exhibitions and various social functions) utilising venues like hotel, halls or open-air grounds also became effective from April 1.

Modi said the tax hike had been announced in keeping with the decision taken at the empowered committee of the finance ministers of all the states. The tax increase on select items has also been made in states such as Gujarat, Rajasthan, Uttar Pradesh, Karnataka and Madhya Pradesh, among others.

Speaking at a function on Monday, Modi said the NDA government, in the last five financial years, not only improved the law and order situation, but also managed to make business-friendly atmosphere in the state, which resulted in relative decrease in migration of people to other states. Moreover, traders and business circles enjoyed security, he added.

Modi, while reviewing the revenue collection, directed the officials of commercial taxes department to maintain the tempo of collection. During the 2010-11 fiscal, the department netted a revenue of Rs 6,666 crore, which is Rs 1,131 crore more than Rs 5,535 collected during the 2009-10 fiscal.

He also said the department should achieve 100% computerisation as part of the e-governance initiative, during the current fiscal, and also asked traders to go for computerisation.