Preamble
The salient features of the Karnataka State Budget presented in the Legislative Assembly on 17.07.2008 with respect to Commercial Tax matters are stated below. The budget proposals, when enacted, may undergo amendments and may not be in consonance with the proposals, which is the basis of this note. It is therefore, suggested that the readers reconfirm the validity of this note after the law is enacted, rules are framed and the notifications are issued. |
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| Tax Proposals |
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- Goods and Service Tax
Nothing much is spoken in the budget in respect of Goods and Service Tax (GST) which supposed to be reality in 2010. The State Finance Minister in his budget has only given a passing reference to the possibility of a common Goods and Services Tax being introduced throughout the country in the next two years and that it is seriously considered in the deliberations of the Empowered Committee of the State Finance Ministers. The 13th Finance Commission which has recently been constituted by the Central Government has already commenced their deliberations on the issues relating to Fiscal Federalism in the Country.
- Value Added Tax
- Textile Industry
- This is budget has given relief to the textile industry wherein all types of components, accessories, spares and parts including packing materials used by the textile industry will be subject to tax at 4%.
- Till date imported textiles were subject to tax at the rate of 12.5%. It is proposed that sale of imported textiles would be exempt from levy of tax.
- Entry tax on readymade garments will be abolished.
- Vehicle dealers
- It is proposed to reduce the tax on sale of used motor vehicles and cycles sold by dealers of used vehicles to 4%. It may be noted that, in terms of notification no. FD 115 CSL 2007(4), Bangalore, dated 30.03.2007 used motor vehicles if sold is already subject to tax at the rate 4%. Whereas bicycles is covered under entry no. 13 of the Third Schedule to the KVAT Act, 2003 which is also subject to tax at the rate of 4%.
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- Works contractor
- Now works contractors would be required to deduct tax at source on his purchases of iron and steel, hardware, plywood and timber. The issue is whether all works contractor would be covered only those who is involved in civil works. Looking at the previous notification issued under section 18A of the KVAT Act, 2003 it appears to me that only civil works contractor would be covered under the provision of tax deduction at source under section 18A of the KVAT Act, 2003.
- General Relief
- Plastic boxes, cases, crates and similar articles used as articles of conveyance or as packing material will be taxed at 4% retrospectively from 1.5.2005.
- VAT on vermicelli will be reduced to 4%.
- VAT on corn cobs/powder/grits will be reduced to 4%.
- VAT on branded brooms manufactured with grass and natural sticks will be abolished.
- Procedural Issues
- The benefit of input tax credit will be made available to the transferee when sale of business takes place from one registered dealer to another.
- The requirement of filing the annual VAT statements by traders in addition to monthly returns will be dispensed with. It implies that only the traders are covered and not the manufacturers. In other words manufacturer may still be required to file annual return with the department.
- The penalty levied on late filing of monthly returns will be reduced from 10% to 5% if the delay does not exceed 10 days under section 72(1) of the KVAT Act, 2003.
- Revision orders of Joint Commissioners will now be appealable to the Karnataka Appellate Tribunal.
- Excess claims of input tax credit will henceforth attract penalties. Section 72(2) of the KVAT Act, 2003 already deals with excess claim of input tax credit wherein any dealer overstates his entitlement of input tax credit in excess of 5% would be subject to penalty. The question is, by insertion of new provision whether the dealer would be facing two penal provisions?
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