Consumer durables major LG Electronics may stand to lose nearly Rs 70 crore once value-added tax (VAT) is implemented from January 1, 2008, in Uttar Pradesh. The company?s manufacturing plant, located in Greater Noida, was given sales tax exemptions from the UP government. But with the implementation of VAT, this would come to an end.
The move may prompt the company to hike prices of its products. ?
LG was given sales tax exemptions in UP because the company had agreed to make capital investments in the state. This essentially meant the sales tax was set-off for a certain value of investment. With the introduction of VAT, sales tax will be gone and hence the company will have to forego the tax holiday it has enjoyed so far and instead pay VAT on the end price point.
?We have not yet fully utilised the tax holiday and in this regard we have sent our representation to the state government. We are quite hopeful that the government would review its decision and we would be allowed to continue with the tax exemptions. If not, the new structure will definitely force us to hike prices of our products,? V Ramchandran, director-sales and marketing, LGEIL told FE.
Post-VAT, the tax on most goods will come down to an effective 20%. Till now, there were 15 tax slabs ranging from 0.5 to 32.5% in the state. Under the new regime, there will be only four slabs with a maximum limit of 12.5%.