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Traders feel the heat from VAT hike
September, 25th 2008

The recent hike in the Value Added Tax (VAT) and the imposition of entry tax have made some items the costliest in the state.
These include tea, cellphones, TV, computers, laptop, air conditioners, refrigerators, electrical and electronic goods, steel, iron and steel. The difference in tax rates between Uttar Pradesh and the neighboring states on most of these items is as high as 8.5 per cent.

Now, the business and industry are up in arms against the governments move and the traders organisations have called for a statewide bandh on October 4.

Terming the governments decision retrograde, the traders said the high tax rates will inflict damage on the states economy as business will be diverted to other states.

The hike will not only cause a huge loss to business, but will also accelerate the process of migration of industries to neighboring states that provide a better tax structure, said Praveen Sadana, president of the Indian Industries Association (IIA). Rohit Kohli, president of the UP Computer Dealers Association, agreed: Instead of buying a laptop or a computer at 12.5 per cent tax, the buyer will prefer getting it from neighboring states where the tax is 4 per cent.

Those involved in manufacturing transformers are also making dire predictions. The tax on the cheapest transformer will be Rs 17,000, which will make our products uncompetitive. If the hike is not rolled back, then we will have to shift our units to Uttarakhand, said S K Rungta, president of the UP Transformer Industries Forum.

The Indian Cellular Association (ICA) an apex body of the mobile industry comprising manufacturers, brand owners, distributors, retailers and consumers has, meanwhile, urged the state government to reconsider its decision of increasing the VAT on mobile phone sets from 4 per cent to 12.5 per cent.

In a memorandum to the government, the ICA said the hike would only lead to smuggling of cellphone sets from the adjoining states and even Nepal where the tax rate is 4 to 6 per cent.

Pankaj Mohindroo, ICA national president, said it may also lead to the emergence of a grey market, where the consumer will purchase the sets without giving any tax to the government. With the hike in the taxes, mobiles sets ranging in price between Rs 1,500 and Rs 30,000 will be costlier by Rs 127 to Rs 2,550, he said. The government has, however, defended the hike saying that the traders did not pass on the benefit of its original decision to cut VAT to 4 per cent to consumers.

The VAT has been increased only on those goods and products which were charged at the rate of 7 to 11 per cent under the old trade tax regime, said Govindan Nair, principal secretary of tax and registration.

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