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States consider VAT hike
May, 13th 2013

GST panel says no to placing mobiles in declared goods list

State governments, which had increased value added tax (VAT) rates by one to two percentage points beginning 2009, and have hence reported higher revenue growth than the Centre, are considering another round of hike in this tax, their principle revenue source.

In what reflects the inability of the Centre to convince the states to stick to the principle of lower tax rates and broader taxpayer base to accelerate revenue growth, the empowered committee (EC) of state finance ministers, which met for two days here, seriously weighed the option of raising the VAT rate for merit goods to 6% from 5%.
State VAT rates were originally fixed at 4% (for merit goods) and 12.5% (the residual rate applicable for most items) when this system was introduced in April 2005. These rates were hiked to 5% and up to 14.5%, respectively, by some states in 2009 and others subsequently.

While the merit rate is applicable to a lesser number of goods — healthcare, information technology goods, industrial inputs etc — the residual rate is applicable to a larger number of goods. In terms of revenue potential, however, merit goods have a significant role.

The once-aborted plan to levy VAT on sugar and textiles is also under active consideration, with the EC asking a sub-committee to look at the pros and cons of such a move. Until 2006, the Centre used to impose additional excise duty in lieu of sales tax (the rate was originally

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