People in Telangana may have a reason to cheer with the state government considering reducing the value added tax (VAT) on mobile handsets from the current 14.5 per cent to 5 per cent.

Sources in the commercial tax department said that the government, in its bid to encourage more mobile handset manufacturers to set up shop in the state, chose to seriously consider a request from them to revise the tax structure.

A delegation of senior executives representing mobile phone manufacturers headed by Indian Cellular Association president Pankaj Mohindroo met chief minister K Chandrashekhar Rao in June over setting up a manufacturing hub in the city.

While government officials showed the delegation some sites for setting up the manufacturing base on the outskirts of the city, the chief minister's office (CMO) had sought a detailed project report with a list of requirements apart from extent of land needed for the hub, which is expected to generate nearly 2 lakh jobs.

A senior commercial department official said that one of the considerations behind this move to revise VAT on mobile handsets was that almost all electronic equipments, components and gadgets have been listed under Schedule IV of the VAT Act among goods taxable at 5 per cent. The sources said that this issue was deliberated at a cabinet sub-committee meeting on commercial tax policy last Friday.

"The sub-committee is working towards preparing an industry-friendly and pro-consumer commercial tax policy," commercial tax minister Talasani Srinivas told TOI. Srinivas heads the sub-committee that includes finance minister Etela Rajender, irrigation minister T Harish Rao and forest minister Jogu Ramanna.

While he did not want to discuss the proposed revision of VAT rates, Srinivas said that the panel was set up to take some important decisions following its visit to Gujarat and Maharashtra between September 13 and 14.

"Our primary focus is to plug the loopholes in the system leading to revenue leakage and enhance revenue collection. We will visit Maharashtra and Gujarat where the system and process are said to be efficient," he said. "As far as revising tax rates is concerned, many aspects have to be taken into consideration. I can't discuss about them at this stage," the minister added.

But, while the cut in VAT on mobile handsets may bring some cheer, this may lead to several problems. The sources said that the government may marginally hike the VAT rate on some essential commodities listed under Schedule IV, such as flour, maida, sooji and vegetable oil, that currently attracts 5% VAT. Also, the long pending proposal to bring services at corporate hospitals under luxury tax net is being seriously considered, the sources added.