Karnataka may lose Rs 2,160 cr

Bangalore, March 21 | Updated: Mar 22 2005, 05:30am hrs
Karnataka is all set to introduce value added tax in the place of sales tax, on all commodities except petrol, aviation turbine fuel, diesel, and sugarcane from April 1, 2005. Along with this, the state has decided to exempt some of the foodgrains and items like rice, paddy, wheat, bread, bun and rice flakes.

Proposing Vat, Siddaramaiah, deputy chief minister, who holds the finance portfolio also said that the likely revenue loss in the first year of introduction of Vat is about Rs 2,160 crore. The Central government will compensate the revenue loss fully in first year, 75% in the second year and 50% in the third year, he said.

However, some of the tax consultants feel that the state is not going to have any revenue shortfall from Vat. Vat will make unregistered traders to become registered. From this, a huge chunk of business community will be added to the current registered traders. This will make way for more revenue collections, said D Venkatesh, tax advocate, MVR Associates.

It is said that around two lakh unregistered traders are expected to get registered from this exercise.

Meanwhile, BT Manohar, chairman-tax committee, Federation of Karnataka Chamber of Commerce and Industries, said that in the initial year state is expected to get a hit on its tax revenues. The overall tax effect on the common consumer under Vat would be lower that the present tax effect, he said.