The Orissa government, which has put on hold collection of five cent levy on sugar and textile fabrics following protests from traders, will take a final call on the issue after due consultations with neighbouring states.

We will hold discussions with neighbouring states that have also introduced Value Added Tax (VAT) on sugar and textiles. While Chhttisgarh has slashed VAT rate on sugar and textiles from five per cent to one per cent, the Madhya Pradesh government has announced roll back on the move. The Andhra Pradesh government is yet to implement VAT on sugar and textiles though they have introduced it, said a senior finance department official.

In its Budget for 2012-13, Orissa had announced levy of five per cent VAT on sugar and textiles with effect from April 1 this year besides raising base VAT rate from four per cent to five per cent. While VAT on sugar and textiles was to enrich the state exchequer by Rs 130 crore every year, the state stood to gain Rs 400 crore on one per cent hike in base VAT rate.

The state governments move to tax these two essential commodities had sparked protests from traders who went on an agitation and had threatened to stop import and sale of sugar and textile fabrics. The traders mellowed and withdrew from the stir after the state finance minister Prafulla Chandra Ghadai assured to look into their demand.

Bowing to intense pressure from traders, the state government had decided to put the matter on hold.

Apart from facing the protests of traders, the government also had to counter the wrath of the Opposition in the state assembly who accused the government of needlessly burdening consumers with a price hike on these two products.

Traders, who were sore over the imposition of VAT on sugar said, the tax could raise prices of the commodity by Rs 2-Rs 3 per kg. While sugar is currently priced in the state at Rs 3,100 per quintal, the retail price ranges from Rs 35-Rs 37 per kg. Imposition of five per cent VAT was expected to push up cost of textiles by 20per cent. An entry tax of two per cent is also being levied on textiles.

It may be noted that the decision to levy VAT at the floor rate of 4-5 per cent was taken following consensus among state governments in October last year at the empowered committee meeting of state finance ministers.

Since textiles and sugar were in Centre's tax schedule, the states did not have the power to levy tax on these items until they were moved out from the schedule in the Union Budget for 2011-12.