Consumers will have to pay more for sugar and textiles as States on Friday decided to impose four-five per cent value added tax (VAT) on sugar and textiles from the beginning of next fiscal. A move that will shore up their state governments revenue, but also stoke inflationary pressures.

“We have decided to levy VAT on sugar and textiles from April 1, 2012, which earlier used to come under Additional Excise Duty (AED) and was collected by the Centre,” Empowered Committee of State Finance Ministers on GST (Goods and Services Tax) Chairman Sushil Modi told reporters here. Modi is also Bihar’s deputy chief minister.

“There is consensus among states on imposing vat on sugar and textiles,” Sushil Modi, Bihar deputy chief minister and chairman of the empowered committee of state finance ministers told reporters after a meeting of the panel on Friday. However, he said most states were in favour of keeping the rate low so that no hardship is cause to people and denied that the move would be inflationary.

“We are only replacing one tax with another,” he said. Sugar and textiles were so far exempted from state VAT as they were under the list of additional excise duty (AED) levied by the central government. The tax is collected by the centre and passed on as devolution to states.

Until 2006, the Centre used to impose additional excise duty in lieu of sales tax (the rate was originally 4% but was subsequently reduced to 2%) under a central Act on these commodities. The states used to get one percentage point additional share from the Centre from the divisible pool of its tax proceeds on account of this central tax. The tax rate was reduced to nil at a point and subsequently, the Act itself was abolished. The Thirteenth Finance Commission, meanwhile, has proposed a one and half percentage point increase in states’ share of Centre’s tax revenue to 32%.

Since textiles and sugar were in Centre’s tax schedule, the states did not have the power to levy tax on these items until they were moved out from the schedule in this year’s Budget.

WHO WILL SAVE INDIAN CONSUMERS FROM INFLATION , GOD ONLY KNOWS. PETROL PRICE HIKE, RICKSHAW FARE HIKE, INTEREST RATE HIKE AND  NOW VAT ON SUGAR AND TEXTILE.

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