Life just got costly for Bangalore residents. Vat69? no change

Drown your sorrows  in liquor, because it will be the only thing for which you need not shell out more. Thanks to the state budget presented here today, living in Bangalore will become more expensive from April 1.

The state government proposed a 1% increase in the value added tax (VAT) to 13.5% from the current 12.5% and to 5% from 4%. The increased VAT will be effective from April 1. However, for declared goods such as iron and steel, oil seeds and cotton, the 4% VAT will continue. Food prices are also likely to increase due to the hike in VAT and high transportation costs, say taxation experts.

The cost of living in Bangalore and other places in Karnataka will also increase, says Sanjay Dhariwal, partner of Dhariwal and Shreenivas and state taxes committee member at FKCCI and BCIC. For the common man, prices of all commodities, including toothpaste, will see a steep rise.

The increase in prices of essential commodities will have a ripple effect on other items too. The VAT on television, refrigerators and other luxury items will increase to 15% from 12.5%. Similar is the case with stationery items. The VAT on such items has been increased to 5% from 4%.

The budget has not done any good to the housing sector despite the proposed 1.5% reduction in stamp duty, says Dhariwal. Cement, ceramics, sanitary items and other construction materials will cost more. VAT on raw materials used for construction, such as sand and jelly stones, has been increased by 1%.

Furthermore smokers should, henceforth, think twice before lighting up because the state government has also increased the cost of tobacco from 12.5% to 15%. However, it has not touched the cost of liquor. Analysing this, Dhariwal said that this could be because liquor is consumed in large quantities and the government is earning sufficient revenue through it.

Driving on roads will also become expensive as the increase in lifetime tax will increase the VAT on motor vehicles from 12% to 13%. This has come as a shock, considering that the central government had already increased the cost of high-end cars. Adding to this, state taxes committee chairman in the BCIC, S Venkataramani, said that while the state government has allocated Rs18,000 crore for improving the city’s infrastructure, it stands to earn an additional revenue of Rs260 crore through motor vehicle taxes. It will, however, not stop people from buying vehicles. Adding to this, he pointed out that the cost of petrol and diesel has not been increased under VAT.

Luxury holidays will now become expensive as the government has increased the luxury tax from 6% to 8% for hotel room rents ranging between Rs1,000 and Rs2,000, and from 10% to 12% for rooms with a daily rent of over Rs2,000. This will severely affect tourists visiting the state, which seeks to be promoted as a tourism hub, said Vishnu Bharath, chartered accountant and former chairman of the FKCCI taxation committee.

The government will now collect an entry tax of 1% on sugar from factories, instead of distributors. The cost of sugar will only escalate due to VAT and fuel charges.

The increase in levy on fast-moving consumer goods by 1% will affect the common man to the hilt. You will have to pay more for FMCG products, packaged food, toiletry, housing, electrical goods, eat-out trips, software and hardware products, and tobacco.