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Flawed case of hiking VAT rates, says tax expert

Vinson Kurian Thiruvananthapuram | Updated on November 14, 2017 Published on March 19, 2012

Increase in VAT rates to five per cent and 13.5 per cent would hardly help the case of the common man already hemmed in by 9 per cent inflation.

This is how Mr Sherry Oommen, leading tax counsel and tax policy expert, reacted to the State Budget presented on Monday.

It is inexplicable the budget bases the revision on the premise that compensation from a GST rollout is dependent on the revenue collected in the preceding years.

However, contrary to the claim of the Finance Minister, it may be noted that this compensation is dependent on the loss, if any, incurred in the event GST is introduced.

In the present case, as akin to the scenario where value-added taxes was introduced, it is extremely unlikely that the State would incur any such loss.

Thus, the justification given for the increase in the VAT rates appears flawed, Mr Oommen said.

The drastic increase in the peak road taxes from eight per cent to 15 per cent coupled with the hike in the excise duty could negatively impact the auto sector.

On the positive side, there is a reduction in the rate with respect to food grains, pulses and other essential commodities from for per cent to one per cent.

This comes as a huge relief for the common man in the wake of an inflationary trend especially on the wholesale price index.

Further, the abolishment of social security cess of one percent is also a well-intentioned move.

The State Government has quite clearly laid high emphasis on agriculture inter-alia through the initiation of green house initiatives and clean environment.

Proof of this was the exemption of cloth bags from VAT and also the proposal to levy an increased VAT of 20 per cent in the case of plastic bags, health care and tourism.

These initiatives are indeed welcome, Mr Oommen said.

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Published on March 19, 2012
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