Will Guj govt cut taxes? Slash that thought, say experts

The state budget for 2009-10 that Gujarat finance minister Vaju Vala will present in the state assembly on Tuesday is unlikely to have much good news insofar as tax cuts are concerned. The common man is hoping that the government would announce a reduction in value added tax (VAT) rates — at least to pre-2008 levels — so that goods and services could become less expensive.

In the 2008-09 state budget the government had increased VAT from 4% to 5% on raw materials and from 12.5% to 15% on final products. This had impacted the common man’s domestic budget and spending. The previous state budget — also presented by Vaju Vala as state finance minister — had also increased professional tax, thereby helping the government mop up an additional Rs120 crore as tax revenue.
The rise in VAT rates had led to an increase in prices of articles such as cars, cellphones, refrigerators, computers, air-conditioners, tea and garments, among other things.

Experts believe that, contrary to most people’s expectations, the focus of the 2009-10 state budget would be on maintaining the state’s growth rate and not on reducing prices.
“The state government is unlikely to announce cuts in VAT or other taxes in the forthcoming state budget,” said Prof Ravindra Dholakia of IIM-A.