Uttar Pradesh faces revenue loss of $364 million


Lucknow : Uttar Pradesh, the last state in the country to switch over to the value-added tax (VAT) regime, is likely to lose some Rs.30 billion ($364 million) in revenues for being late, said a top official.

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The state has decided to launch the VAT regime from Jan 1 to replace the existing trade tax system.

All states that switched over to the VAT regime by 2005, when it was first proposed, were entitled to total reimbursement of initial revenue losses by the central government in the first year of implementation, 75 percent in the second year and 50 percent in the third year.

“Uttar Pradesh’s initial loss on account of the switchover is likely to touch Rs.30 billion,” said a top official of the state’s institutional finance department.

The state would not be able to claim any reimbursement from the central government towards revenue losses suffered during the first year of the VAT implementation.

In a related development, traders said food and essential items would cost higher under the new system.

Wheat, rice and pulses are exempt from trade tax but will attract a 4 percent VAT.

“With wheat, rice and pulses to be now taxed at the rate of 4 percent, food is naturally going to become costlier for all and sundry, but would hit the poor the most,” said Banwari Lal Kanchal, Samajwadi Party MP and head of the Uttar Pradesh Traders Organisation, which has been opposing the introduction of VAT in the state.

According to the 278-page ordinance issued by the Mayawati government Thursday to implement VAT in the state, as many as 140 new items have been brought under its ambit.

Interestingly, items like automobiles, jewellery and other expensive consumer goods would see only a marginal price hike under the VAT regime.