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Vishwanath Kulkarni

Considering the fact that elections would be held in the State next year, the general perception among the trade and industry is that some populist measures are likely to be announced.

BANGALORE, March 12

THE proposed introduction of the value-added tax (VAT) regime has triggered fears among trade and industry that the Karnataka Government may levy additional duties to neutralise the impact of revenue compression in its Budget next week.

Representatives of trade and industry have sought assurances from the Government that the State Finance Minister would not resort to any additional taxation/duties.

"We would like to see that VAT is introduced properly, in a sense that the State should not charge any other levies, like the entry tax for that matter," said Mr K. Ramappa, Secretary, Federation of Karnataka Chambers of Commerce and Industry (FKCCI).

"There are rumours that the State might continue to charge entry tax even after VAT is introduced. If that happens, then that takes away the purpose of introducing a uniform tax regime and does not lead to simplification of tax procedures," Mr Ramappa said.

Compared to other States, Karnataka seems to be well positioned in terms of implementing the VAT regime. "The State has already rationalised quite a bit on the tax front last year itself, and there would be hardly anything to do except for the proper implementation of VAT," he said.

"We are looking forward to some clarity on the floor and the ceiling on VAT rates," said Mr G. Giridhar Prabhu, President of the Mangalore-based Kanara Chamber of Commerce and Industry (KCCI).

"We also expect the State Government to review stamp duty. Karnataka charges stamp duty at 13 per cent, highest in the country, which in turn is killing liquidity in the real estate market," Mr Prabhu said adding that legitimate transactions were getting affected.

If the State reduces the duty, it would gain significantly in terms of increased transactions, he said.

Mr Madan Desai, President, Karnataka Chamber of Commerce and Industry, Hubli, said, "With the introduction of VAT, we expect the Government to rationalise the taxes and bring it on par with the neighbouring States such as Goa, Maharashtra and Tamil Nadu."

Any differential in taxes would result in flight of trade to the neighbouring States, he said. The Karnataka Chamber of Commerce and Industry, which has been fighting for the removal of the one per cent Agricultural Produce Market Committees levy on processed goods, also expects it to be removed, Mr Desai said.

Considering the fact that elections would be held in the State next year, the general perception among the trade and industry is that some populist measures are likely to be announced by the Chief Minister, Mr Krishna.

"The Chief Minister does not have any have any room to make hard choices," said Mr Ramappa.

However, there are concerns on policy issues as to how the Government would handle fiscal and revenue deficits.

"The last few budgets presented by Mr Krishna have been progressive, considering from the policy point of view. However, a correlation has not been found in announcing the policy and its implementation," said Mr Prabhu.

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