The Telegraph
Since 1st March, 1999
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Big comeback: entry tax; debut: deficit

Calcutta, March 20: West Bengal has resurrected the infamous entry tax, making goods costlier when they reach the municipal areas of the state.

Unveiling the budget for the next financial year, finance minister Asim Dasgupta laid out the roadmap for the introduction of value-added tax (VAT) — a uniform tax regime.

But Dasgupta, who is also the chairperson of a Central committee overseeing the VAT implementation, went against the objective of the uniform system by reintroducing the entry tax which was abolished in 1995.

Dasgupta announced a proposal to curtail unproductive non-plan expenditure, contain the growth of salary bill within 5 per cent and that of pension within 10 per cent. The initiatives won applause from industry associations which were otherwise not enthused by his budget.

Dasgupta has proposed the introduction of land tax — for both commercial and non-commercial purposes — to garner Rs 150 crore during the next financial year. He added that the government would mop up Rs 200 crore by imposing a tax on tobacco, sugar and textiles, which were so far not under the purview of states.

The finance minister — known for presenting zero deficit budgets — made a sharp deviation this time and projected a Rs 793-crore deficit for 2003-04. Explaining the jump in deficit in 2003-04, he said: “Much of it is due to increase in interest expenditure on small savings deposits. This year, we have decided to cut borrowings from small savings by Rs 3,200 crore.”

Dasgupta tried to press one of his long-standing demands with the deficit figures. “I am presenting the budget with this deficit to pinpoint our justified demand for reduction of at least 25 per cent of the unfair Central loan burden on all states. If even a part of this demand is met, this deficit will not only be wiped out but an augmentation of the state’s plan outlay will follow.”

Entry tax will mean a special levy on goods entering municipal areas. The rates will be announced later, but the government is expecting to reap Rs 500 crore through the reimposition.

Though the finance minister claimed that the reintroduction of entry tax would not affect consumer prices, industry representatives said several household items would cost more. The products likely to bear the brunt of this tax are automobiles (both four- and two-wheelers) and auto components, television sets, air-conditioners, washing machines, consumer non-durables and fast-moving consumer goods.

Products like edible oil, packaged foods, biscuits, chocolates, cigarettes, readymade garments, medicines, diagnostic products, sugar and tobacco are also likely to cost more. Most of these products are brought to the state from outside.

“Whatever is being brought from outside will attract the entry tax and as a result will be dearer,” said a senior member of the Bharat Chamber of Commerce.

The entry tax, proceeds from which used to go to the municipal bodies, was abolished on April 1, 1995. Dasgupta said that even after the abolition of entry tax, the municipal bodies were given grants on the same scale.

“However, after the 74th amendment to the Constitution of India, the responsibilities of municipal bodies have increased manifold and they are in need of adequate funds from the state government for discharging their responsibilities and obligations. In order to ease the availability of additional funds for municipal bodies in the state, I propose to reintroduce entry tax in the year 2003-04,” Dasgupta said in his speech.

A Bill to this effect will be introduced in the Assembly after obtaining the approval of the President.

Industry observers believe that the reintroduction of entry tax will pave the way for smuggling, especially of bulk products like edible oil and cigarettes.

“At a time when both VAT and Central sales tax exist concurrently, the decision to slap another tax can’t be justified. Besides, the bureaucratic hassles involved in entry tax collection will lead to higher transaction cost,” said Deepankar Chatterjee of the Confederation of Indian Industry (CII).

Economists also questioned the rationale behind reimposing the tax. “While efforts are being made to move towards a unified single market concept, the decision to create state-level tariff barriers is a regressive and inefficient step. It will create inflationary pressure in the local markets,” said a city-based economist.

Dasgupta said the state was hopeful of introducing VAT by April 1. “We have already obtained prior presidential approval for introduction of VAT. We will now have to move a Bill in the Assembly following which we will have to seek the President’s final approval.”

The tax structure under VAT will be “simple” with two basic rates, 4 per cent for basic necessity goods, industrial and agricultural inputs, declared goods and capital goods and 12.5 per cent for other goods.

Dasgupta made it clear that the VAT regime would lead to a decline in prices as it will prevent multi-point taxation.

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