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Saturday, March 31, 2012

Enter, an enigma called entry tax

Enter, an enigma called entry tax

Calcutta, March 30: A strange apparition named entry tax but resembling other levies and armed with a written rate as well as an uttered one has been sprung on Bengal.

Finance minister Amit Mitra today tabled in the Assembly a bill that proposes to levy an entry tax not exceeding 5 per cent on all products barring those consumed daily and farm products but later clarified that the rate would not exceed 1 per cent.

According to the bill, "the state government may, by notification, specify the rate of tax levied under this act which shall not exceed 5 per centrum when such tax is levied…"

When the Opposition raised a furore over the rate, Mitra stood up and said: "I am informing the House that the rate will be one per cent flat."

Mitra had proposed levying an entry tax in his budget speech last Friday but had not listed the specifics of the levy that was greeted with dismay by trade and industry. The Left government had abolished a similar tax in 1995 as it was found to be choking check posts and feeding corruption.

The new government today introduced the bill — the West Bengal Tax on Entry of Goods into Local Areas Bill, 2012 — in an attempt to clear the air. But many questions still appear to have been left unanswered.

Although the mop-up from the entry tax will form a key component of Mitra's proposed additional revenue mobilisation of Rs 200 crore, the finance minister did not mention the amount he was expecting to collect through the new tax.

Mitra's predecessor Asim Dasgupta and leader of the Opposition Surjya Kanta Mishra had asked for a break-up of the additional revenue mobilisation target.

After Mitra proposed the entry tax in his budget, several economists and representatives of trade bodies had dubbed the measure "regressive" because of its inflationary potential.

Today, Mitra sought to address that concern. Echoing what chief minister Mamata Banerjee had said on the day of the budget, Mitra iterated that the tax would not inconvenience common people.

"It would not add any burden to the common people as items like paddy, rice, sugar, pulses, vegetables, egg, meat, fish, LPG, fertiliser, pesticide, cotton, milk, fishing net, books, periodicals etc would be exempt. The tax would be collected in the same mechanism used to collect VAT and sales tax," said Mitra.

But several doubts persisted. At the centre of the opacity over the proposal is its nomenclature. If the tax is going to be levied the same way as VAT, it means the collection will be on consumption of the products and will be imposed at the end of the retailer.

In principle, entry tax is applicable to a particular region, for example the Calcutta Metropolitan Area. But the bill is silent on what the finance minister meant by local area. "Then why is it being called an entry tax? Which are the local areas?" asked an economist.

Opposition leader Mishra also raised the same point on the floor of the House. "It is still not clear whether it is a separate tax. The bill does not specify what will be the rate of tax on different items. Will it vary from area to area?"

Mishra wondered whether it was another VAT on VAT — the answer to which can raise legal questions. "I apprehend it might be challenged in the court of law. If the state imposes a tax on tax, the bill will be in question," he said.

Mishra suggested that the government could have increased the applicable VAT rates on various products — an unpalatable and risky option for Mitra who is part of a government whose aversion to any form of hike is well known.

Mishra's sentiment was echoed by business circles. "He should have increased VAT. What is the point of introducing a new tax? It will only add paperwork and further confusion. We are not sure about the mechanism either," said D.P. Nag, the secretary of Bengal National Chamber of Commerce and Industries.

A senior official of the MCC Chamber of Commerce, which recently urged the finance minister to withdraw the entry tax, expressed disappointment over today's notification.

"It will certainly add to inflation and may lead to more corruption. When the world is going towards removing barriers for trade, we are creating them anew," the MCC official said.

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