Siddaramaiah prepares State for VAT regime

Congress workers demanding steps to improve water supply in Tumkur district gathering around the Deputy Chief Minister, Siddaramaiah, on his arrival at the Vidhana Soudha to present the Budget on Friday. — Photo: V. Sreenivasa Murthy  

BANGALORE, MARCH 11. Karnataka today took the first firm step towards the value added tax (VAT) regime when the Deputy Chief Minister, Siddaramaiah, indicated in the budgetary proposals that VAT will be implemented from April 1. Karnataka thus becomes the first State in the transition process from sales tax to VAT.

Supporting this "historic" tax reform in the country, Mr. Siddaramaiah said that the overall tax effect on the common consumers under VAT will be lower than that under the present system. Hoping that the trade and industry will respond positively to the tax reforms process, he said many goods of common consumption will have lower taxes.

With the introduction of VAT, he said the State is likely to incur a revenue loss of about Rs. 2,160 crores, which the Centre will fully compensate. The Centre will compensate 75 per cent of the loss in the second year and 50 per cent in the third year, by which time the VAT system is expected to stabilise. To facilitate the process of implementation of VAT, the Commercial Taxes Department will be reorganised, Mr. Siddaramaiah said.

Paddy, wheat exempted

Conceding the demand of the trade and industry, Mr. Siddaramaiah has exempted under the proposed VAT system paddy, rice, wheat and pulses for one year, and seeds, avalakki (beaten rice), mandakki (puffed rice), pappad and branded bread and bun. Tax on tea has been reduced to four per cent.

Mr. Siddaramaiah said that the merger of sales tax with excise duty on rectified spirit and liquor ensured effective collection of revenue. In the light of this measure, he proposed to exempt molasses from tax under VAT and levy an equivalent excise duty on rectified spirit manufactured from molasses.

Sales tax arrears

Stressing the need to reduce the arrears of sales tax as the State moves to VAT, Mr. Siddaramaiah has announced a scheme for clearance of sales tax arrears. If a dealer pays the tax admitted or assessed in full for any year till March 31, 2004, on or before May 30, 2005, along with 10 per cent of the penalties and interest levied or leviable, and also withdraws any appeal filed disputing the tax assessed, the balance 90 per cent of the interest and penalties levied or leviable will be waived. If a dealer pays 10 per cent of the penalties and interest levied or leviable for any year up to March 31, 2004, on or before May 30, 2005, the balance 90 per cent of the interest and penalties will be waived.

He proposed to exempt tax on leasing of feature films, retrospectively, from August 2004.

He proposed to continue sales tax exemption on diesel sold to fishermen and increase the quantity of diesel eligible for sales tax exemption from 50,000 kilolitres to 55,000 kilolitres for 2005-06. There is a proposal to reduce tax on inter-State sale of two-wheelers, three-wheelers and plastic stitching yarn to one per cent to encourage sales from Karnataka.

Special entry tax

Mr. Siddaramaiah proposed to levy special entry tax on plastic woven sacks, paper and stationery to prevent trade diversion. A similar tax will be levied on goods in which there could be trade diversion if some neighbouring States do not implement VAT by April 2005.

He has exempted notified goods brought into the State from overseas for exhibition, display, demonstration, performance, concert, shows or similar events, by research and development institutions and educational institutions, free of cost, and by persons on transfer or change of residence.

The Deputy Chief Minister has effected certain rationalisation measures in the Entry Tax Act, which includes reducing the rate of penal interest from 24 per cent to 15 per cent.

Profession tax

Following the representation made by advocates, he proposed to increase the profession tax exemption limit to 10 years and revise the tax slabs for them. The exemption limit in Bangalore Urban area is above five years and below 10 years — Rs. 1,500 a year (Rs. 1,000 in other areas). The proposed exemption is above 10 years and below 20 years. The exemption limit of 15 years for payment of Rs. 2,500 a year (Rs. 1,500 in other areas) has been increased to 20 years.

Mr. Siddaramaiah has exempted circus companies from payment of entertainment of tax to help them tide over the crisis they are facing.

Stamps, registration

Although he has not increased stamp duties or registration charges, he has proposed to revise the existing estimated guideline values of immovable properties situated in Bangalore Urban district and other district headquarters, in view of the upward trend in the real-estate market.

The proposal is to extend exemption of stamp duty and registration fee on all loan and credit documents executed by farmers for availing themselves of agricultural finance. The fee for procuring encumbrance certificate, obtained by farmers, has been reduced to a maximum of Rs. 50.