Mar 30, 2016

New tax proposals of Delhi Value Added Tax

Sir, in the tax revenue, VAT constitutes the major part of our receipts, with nearly 65%- of total collections - and most of our developmental activities depend mainly on the buoyancy and elasticity of tax revenue from VAT. My taxation proposals are founded on the following principles:

123. The first and foremost principle of our taxation policy is to maintain the distributive character of Delhi's trade.

124. Secondly, it is simplification of the existing system and promotion of an all-round ease of doing business.

125. Thirdly, multiple entries relating to the same item or a common group of items are a great source of ambiguity and confusion, which leads to harassment of traders and create a window for reporting manipulation leading to undesirable behaviour. We have tried to simplify it by bringing them under one entry to the extent possible.

126. Fourthly, our Government is fully committed to reducing tax arbitrage and will attempt to keep a uniform rate with neighbouring states. In several items such as sweets - namkeen, watches, readymade garments, lower tax rate in neighbouring States was causing erosion in the same. We have made efforts to remove such imbalances in our VAT structure.

127. Last and most important principle which is the motive force behind our taxation policy is to encourage voluntary compliance, and forge a strong partnership with the trade and the public.

128. Having regard to the above objectives, I propose modifications in the VAT rate which can be classified into two parts :
Reduction in VAT rates
Rationalization of tax rates

Reduction in VAT rates
129. Our Government is committed to check rising pollution due to automobiles and to promote use of environment friendly vehicles, VAT rate on battery operated transport means i.e. e-rickshaws, battery operated vehicles and Hybrid Automobiles (i.e. Battery driven with other fuel option), is proposed to be brought down from 12.5% to 5%.

130. Sweets and namkeens are presently taxable @ 12.5%, while the tax rate in Haryana and Uttar Pradesh is 5%. With a view to avoid geographical tax arbitrage, I propose to reduce the VAT on Sweets and namkeens to 5%.

131. At present, readymade garments upto Rs. 5000/- are taxed at 5%, those above Rs. 5000/- are taxed at 12.5%. Again in neighbouring States (U.P. and Haryana) all readymade garments are taxed at 5%. I propose to rationalize the tax rate by taxing all readymade garments @5%.

132. Marble in Delhi is currently taxable at 12.5% being an unspecified item. Marble Trade Association of Delhi has been requesting for lower tax rate to encourage people to buy marble from Delhi Traders only. I understand reducing the tax rate of marble from 12.5% to 5% would be in the interest of revenue and I propose accordingly.

Rationalizing of tax rate
133. Watches in Delhi are taxed differentially at 12.5% (watches upto Rs.5000/-) and (20% watches above Rs.5000/-), while they are taxed uniformly at 12.5% in neighbouring states. I propose a uniform VAT rate of 12.5% on all kind of watches.

134. Textile and fabric are presently covered under several entries in the tax rate schedules - some under the exempted list, while others in the taxable category of 5%. I propose to simplify this system by levying a uniform tax rate of 5% on all variety of textiles and fabrics (including sarees) except khadi and handloom fabrics.

135. Plastic waste continue to be exempted whereas plastic raw materials i.e. plastic granules, plastic power and master batches are taxable @5%. Since, plastic waste can also be recycled and used as raw material to make plastic articles, it is proposed to tax plastic waste also @5%.

136. Presently, inverters and UPS are taxable at general un-specified rate of 12.5%. However, there is a duplicate entry i.e. UPS units in Schedule III, which is leading to confusion. Therefore, I propose to omit this entry.

137. Presently, footwear above MRP Rs.500/- are taxable @12.5%. I propose to rationalize the VAT rate on footwear by subjecting uniform rate of 5% to all footwear irrespective of price.

138. School Bags having MRP upto Rs.300/- and MRP above Rs.300/- are taxed at 5% and 12.5% respectively. I propose to rationalize by levying a uniform rate of 5% on all schools bags irrespective of price.

139. In the existing entry of Ferrous and Non-ferrous metals, there is no mention of aluminium or metal sheets, and some items are taxed at higher rate of 12.5%. To remove an ambiguity, I propose to modify the entry as "Ferrous and non-ferrous metals and alloys thereof including their sheets, foils and extrusions. Non-ferrous metals includes aluminium, copper, zinc etc."

140. Sir, the Tobacco and tobacco products are currently taxable @20%. The relevant entry reads as under :-
 "Tobacco and Gutkha, unmanufactured tobacco, bidis and tobacco used in manufacture of bidis and hooka tobacco".
 In order to make it more comprehensive, I propose to modify the entry as under :- "Un-manufactured tobacco, tobacco and tobacco products in all forms such as cigarettes (irrespective of form and length), chewing tobacco, gutkha, cigars, hookah tobacco, khaini, zarda, surti, bidis etc."

141. In addition to reforms related to the VAT rates, this government has given a powerful impetus to the public participation in tax management by launching a new scheme of 'Bill Banwao Inaam Pao'. Under this scheme, consumers in Delhi, while making any purchases can send the snapshot of retail bill / invoice to the department through a mobile application. This innovative scheme has promoted a unique partnership between the public and the VAT Department in the context of verification of sale / purchase transactions and compliance, which was based primarily on the visit of tax inspectors in the field only till now. Under the scheme 1% of the entries are shortlisted for award and prize money, thereby incentivizing the participation of consumers. The increasing success of the scheme can be measured from the fact that 8000 entries have been received in the month of February 2016 as against 4000 entries in the month of January 2016 when the scheme was launched.

142. The Government has also introduced a unique Reward scheme to acknowledge and further encourage market and trade associations contributing revenue over and above the targets set for the year. Such associations will get 10% of the revenue generated over and above the target set for the year. Besides this, top 10 performing market association will get cash reward of Rs.5 lakh each. The award money is to be utilized for the overall improvement of the market and maintenance of public conveniences, beautification, repairs etc.

143. Mr. Speaker Sir, it is evident from the above details that our Government is decisively moving away from the past traditions of command, control and penetration of markets by the interventionist government to the role of an enabler and facilitator.

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