From electronic goods and four-wheelers to petrol and spices, a number of consumer durables and food products are set to get costlier with the Bharatiya Janata Party (BJP)-led government approving a hike to value-added tax (VAT) for the second time this fiscal, citing rising expenses on the state’s various infrastructure development schemes.
The state cabinet on Friday decided to increase the price of petrol by Rs1.50 a litre and hiked VAT for two tax brackets by 0.5% and 1%, respectively. The price of diesel will, however, remain unchanged. The changes will be effective from Friday midnight.
With this hike, goods that were earlier charged a VAT of 12.5%, will now be taxed at 13.5%. Similarly, goods that were taxed 5.5% will now be evaluated at 6%. Earlier this year, the state government, as part of its annual budget, had decided to up the tax rate for these goods to 5.5% from 5%.
Government officials said, besides shoring up the current revenue, the tax hike will also help Maharashtra prepare for the introduction of the proposed Goods and Services Tax (GST). “We don’t know what kind of compensation formula the Union government will work out to compensate the states for loss of revenue under the new GST regime. But, in any case, increasing the tax rate now will ensure a more appropriate compensation from the Centre to Maharashtra,” a senior state government official said.
The state sales tax department currently nets approximately Rs70,000 crore in annual revenue. With the introduction of GST, the Maharashtra government is anticipating a revenue shortfall of about Rs20,000 crore at least in the initial years.
This is also the second consecutive year the state government has decided to implement an out-of-turn tax hike. The government had increased levies on products such as liquor, cigarettes, aerated soft drinks, gold diamonds, jewellery, petrol and diesel to raise funds in 2015 allegedly to tackle drought in the state.
The official said the increase in the price of petrol will earn the government an additional Rs600 crore a year. “The recent fall in fuel prices had significantly impacted government revenue, so we had to take this decision to maintain the level of the state’s coffers,” he said. Petrol currently costs Rs68.4 a litre in Maharashtra and is expected to increase by around Rs1.50 a litre.
The latest tax surge will make products such as two- and four-wheeler vehicles, spare vehicle parts, petroleum products, furniture and consumer electronic devices such as television sets, refrigerators and so on dearer. These products, which until now fell in the 12.5% tax bracket, will now be charged VAT of 13.5%.
Similarly, products that were taxed at 5.5% such as bicycles, paper, spices, sweets, milk powder, processed fruits and vegetables, certain medicines, umbrellas, writing material, sporting goods, and bricks, among others, will now be charged a VAT of 6%.
Goods for which the state has declared tax concessions or exemptions will not be impacted by Friday’s decision. These include agricultural equipment, books, meat, fish, food grains such as rice, wheat, jowar, milk, vegetables, fruits, raisins, chili, turmeric, coconut, flowers, incense sticks, cancer drugs and medicines for dialysis and so on.