The Telegraph
Since 1st March, 1999
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VAT sits light on price

Calcutta, March 28: Cooking gas will cost less after April 1. So should a bottle of cola or a bar of soap but would they'

Before any of this happens, though, a bandh will shut down trade, even possibly the neighbourhood market, in Bengal for three days from Wednesday.

Introduction of value-added tax (VAT) from April 1 should lead to a drop in prices of several commodities ' starting from cement to lip gloss ' but manufacturers are not ready to commit yet.

The commercial tax directorate of Bengal has put out a list of products where VAT will have a 'favourable impact' on prices (see chart). But the full list, classifying commodities according to the two VAT rates of 4 per cent and 12.5 per cent, is not available yet, which means it may be too early to come to a conclusion.

In the budget, finance minister Asim Dasgupta said: 'VAT can, thus, help common people, industries, trade and also the government.'

The trade, obviously, does not think so as traders' associations today iterated calls for a bandh from March 30 to April 1.

'Other than petrol pumps and medicine shops, all other trading establishments, including markets, will remain closed for three days,' said Mahesh Singhania of the Federation of West Bengal Trade Associations.

'No one will benefit from VAT,' said Balgopal Trivedi, president of the United Traders' Organisation.

That is not quite correct since at least cooking gas price will fall, possibly by Rs 10.

'In states like Bengal where the VAT rate is lower than the existing sales tax, the benefit will be passed on to the consumer,' an Indian Oil spokesperson said.

Many manufacturers, whose products will attract a lower VAT than the sales tax that prevails now ' and which VAT will replace ' have not decided on prices.

But in examples like refrigerators where VAT is less than sales tax, prices, which would otherwise have gone up, would stay where they are.

Rajeev Karwal, managing director of Electrolux India, said: 'We have been waiting for VAT. There is pressure on (profit) margins with input cost going up. With the benefit from VAT, we will be able to maintain prices.'

Cosmetics, detergents and soaps are gainers in the VAT regime, but the two large manufacturers, Hindustan Lever and Procter and Gamble, would not comment on prices.

Aerated water would benefit, too, but a Coca-Cola spokesperson said the company was evaluating the situation.

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