Millennium tax revenue mop-up by States

Millennium tax revenue mop-up by States
Sunil Jain

NEW DELHI, JANUARY 4: In a major revenue-raising exercise, several States have quietly hiked sales taxes by whopping amounts, while others are expected to follow suit over the next few days. Immediately, starting the new millennium, cars, computers, petrol, diesel, and even salt, have gone up in states like West Bengal, Maharashtra and Gujarat. The total revenue mop-up is expected to be in the region of a few thousand crore -- in Maharashtra alone, according to the State Government, the mop up is likely to be in the region of Rs 250 crore while that in Gujarat is likely to be around Rs 900 crore.

In Gujarat, prices of motorcycles are likely to go up by around Rs 3,000, scooters by Rs 2,000, the popular Maruti 800 by a whopping Rs 16,000, the Zen by Rs 25,000, the Santro by Rs 28,000, the Cielo by Rs 44,000 -- most mid-sized cars will go up by around this amount.

Sales taxes on petrol in Calcutta have gone up from 10.36 per cent to 23 per cent (including a surcharge of 15 per cent), or by Rs 2.42 a litre.Petrol taxes have gone up from 15.3 per cent to 20 per cent in Maharashtra, but meetings are still going on as to whether this can be neutralised in some way.

Prices of computers are likely to increase the most with all 3 states who have announced sales tax hikes so far increasing rates by around 4 per cent. The final hike in prices, however, will depend on how much the companies and their vendors decide to absorb.

Ironically, this hike in sales taxes comes in the wake of the Chief Ministers meeting last month in which they resolved, with great fanfare, to adopt a uniform sales tax policy and to avoid tax wars. While most thought this result in States lowering taxes, what it's meant is that all States will hike rates to a minimum rate.

Thus, according to the agreement signed by the Chief Ministers, the floor rate for all motor vehicles is 12 per cent -- so each state which has pegged its rate below this is now hiking it. Ditto for consumer durables such as TVs and VCRs/refrigerators, airconditionersand washing machines. The floor rates for sales taxes for petrol are also 20 per cent, so expect a sharp hike in petrol prices all over the country soon. Sales taxes on edible oils are now fixed at a floor of 4 per cent -- that's why Gujarat, for instance, which levied 2 per cent on this commodity has now doubled the sales tax. Footwear is now in the 8 per cent floor category, so taxes on chappals have gone up massively from 3 per cent to 8 per cent in West Bengal.

Interestingly, no state has lowered any sales taxes according to the 4-slab formula of sales taxes -- 0 per cent, 4, 8 and 12 per cent. States which have items with taxes above 12, are simply retaining them, or converting them to 12 per cent plus a surcharge. So, there's no cut in taxes, only increases. That's tax rationalisation.