Calcutta, March 11: Bengal finance minister Amit Mitra today raised the value added tax (VAT) by 1 percentage point on many products, departing from a no-hike mantra religiously chanted by the Mamata Banerjee government.
Mitra also milked a favourite milch cow of finance ministers: he increased the tax rate on tobacco by 5 percentage points.
The Bengal budget proposes to raise the lower VAT limit from 4 to 5 per cent. The upper VAT limit will be lifted from 13.5 per cent to 14.5 per cent. Precious metals such as gold and silver, which have a VAT rate of 1 per cent, and some essential items were left untouched.
Mitra said: “Twenty-one states in India raised the lower VAT rate from 4 per cent to 5 per cent several years ago. I propose to raise the lower VAT rate from 4 per cent to 5 per cent. The additional resources will empower lakhs of beloved sisters and brothers of Bengal to stand on their own feet proudly and contribute to the economy and, in turn, benefit businesses strongly.”
On tobacco products, he said: “Several states have raised the tax rate hugely on tobacco-related products and cigarettes because of the serious health hazards. This is a concern and I propose to raise the tax on these products from 20 per cent to 25 per cent.”
Coming after a steep 18 per cent excise duty hike in the Union budget, cigarette prices are likely to shoot up in Bengal. But even then the rates are going to be nearly on a par with the neighbouring states of Bihar, Odisha, Jharkhand and Assam where they vary from 25 to 30 per cent.
The budget speech and associated documents did not explain how much the finance minister hopes to mop up by doing this. Mitra did not take any questions on this after the budget.
The finance minister explained why the upper slab for VAT was being raised by drawing a parallel between Bengal and industrially developed states.
“Our careful study reveals that states which are doing well in the domain of industry and commerce — like Andhra Pradesh, Karnataka, Tamil Nadu and Gujarat — all have upper VAT rate of 14.5 per cent or even 15 per cent. In other words, it is the ease of doing business in a state that attracts investments and more business.
“Since we have done precisely that through path-breaking reforms in taxes, massive e-governance and simplifications, the businesses of Bengal have saved huge amounts of their transaction costs of the past, improving their margins of businesses in Bengal. I propose to raise the upper VAT rate by a small amount of 1 per cent,” he said.
Mitra said the additional resources would help the state build social and physical infrastructure and “spur economic growth through Keynesian multiplier effect, benefiting the businesses greatly”.
Opposition parties slammed the move to raise VAT, saying this would burden the common people.
Some business chambers echoed the sentiment.
“The increase in VAT rates is likely to have a cascading and all-round inflationary effect on all commodities, barring gold and silver, and looks as though it would be detrimental to the interest of trade and commerce in the state,” the Bengal Chamber of Commerce said in a statement.
The Bharat Chamber of Commerce said the increase in the VAT rate by 1 percentage point, along with the continuation of the entry tax, would have a detrimental effect on cost of production as most of the industrial inputs are procured from other states.
However, CII, the Indian Chamber of Commerce and the MCC Chamber of Commerce expressed the hope that the additional revenue generation would empower the state economy and finance the social and physical infrastructure in Bengal.