Cabinet okays VAT on sugar and textile fabrics

BHUBANESWAR: After putting the decision to collect tax on sugar and textile fabrics on hold for a year, the State Cabinet on Tuesday approved the Finance department’s proposal to levy Value-Added Tax (VAT) on these two items with effect from April 1. The Cabinet meeting, presided over by Chief Minister Naveen Patnaik, also decided to raise the lower rate of VAT on food items, medicines and some industrial and IT products from 4 per cent to 5 per cent. The new tax structure will be applicable from the next financial year. The Government had last year decided to levy VAT on sugar and fabrics, but the decision was deferred following pressure from traders. Even after a clarification from the State Government in July last year that tax will not be imposed on sugar and textiles until a notification is issued, traders stopped importing sugar for a couple of days demanding a firm assurance from the Government that 4 per cent VAT will not be collected with retrospective effect from April 1, 2011. The Department of Commercial Taxes had issued a circular in May, 2011 regarding imposition of 4 per cent VAT on sugar and textiles with effect from April 8. Additional excise duty of 1 per cent had been imposed on these items by the Centre. But after its abolition, the State governments are free to impose 4 per cent VAT on sugar and textile products as per the provision. The meeting of the Empowered Committee of State finance ministers held on November 28 last year had unanimously decided that the State governments will be allowed to levy VAT on sugar and fabrics to make good the revenue loss on account of phasing out of Central sales tax (CST), the Cabinet memorandum said. According to an estimate by the Finance department, the State is likely to generate additional revenue of about `25 crore from sugar and `105 crore from textile fabrics per annum if VAT is levied on these two items. The Cabinet decision to increase VAT from 4 per cent to 5 per cent on goods listed in Scheduled-B, Part-II will increase the revenue collection from `1,682 crore in 2010-11 to `2,000 crore in 2011-12 and ` 2,400 crore in 2012-13. The State is expected to earn an additional revenue of ` 400 crore if VAT is increased by 1 per cent.