Entry tax and harassment kicks in, investment logs out

New levy is no boon
Times of India

Bangalore: As Karnataka entered into a new tax regime of “Special Tax on Entry,” on Thursday, it appears that the state has stepped precariously close to a trap where cost of doing business in the state only escalates and investors may become wary of setting up any new projects.

Though the special tax on entry is not an additional tax burden but only applies to those goods that are brought from a low-tax state (ostensibly to avoid the higher rates here), in a way the government is unwittingly closing off options for consumers to source products from elsewhere at cheaper costs. What it means, and rightfully so, is neither the traders can now bill from, say, Pondicherry nor individual consumers can walk across the border paying less for his PC. He has to shell out 13.8% sales tax at the border checkpost, points out a commercial tax department official. In the case of a dealer, he will pay the 13.8% at the time of selling that PC or immediately after one month (if he is not able to sell it by then).

From the state government’s point of view, deputy chief minister Siddaramaiah has gone by his word and protected the local traders from a trade flight to neighbouring states where tax rates are softer. The traders on their part will soon realise that they are caught between the devil and the deep sea. At one hand, there is the high tax rates and on the other the special tax on entry ensures no billing can happen from low-tax states. This stumps the traders, especially the smaller ones in the short term.

In the long run, if the high tax rates aren’t dismantled then it will result in a high cost trap. Doing business in Karnataka becomes costlier by the day and investors may opt to set up their businesses elsewhere.
What is interesting is, Karnataka has chosen to walk away from controversial fiscal incentives only to end up at the other extreme of the spectrum. The move to levy tax on entry looks more precarious since most other states offer fiscal incentives to attract investors apart from keeping their rates lower. As is being promised time and again, all this will end with the implementation of a nation-wide VAT. Will it?

Buy goods outside state, pay entry tax

Bangalore: More tremors from the Karnataka budget will be felt from this month. The entry tax will ensure we cannot buy that PC from Pondicherry at zero tax rate and walk into Karnataka.

Starting October 1, 2004, Karnataka kicked in the ‘special tax on entry’ regime. So, get ready for long queues at the border checkposts. Get used to commercial tax officials frisking your bags, asking nasty questions about that hair dryer gifted to you by your sister in Chennai. And if you indeed are bringing in new stuff from outside the state, ensure you possess the sales receipt for the goods, else shell out 13.8 per cent of the value of the goods as tax at the checkpost, there’s no escaping this.

While the new levy is in aid of the noble cause of plugging flight of trade to neighbouring low-tax states, it has opened a Pandora’s box.

At the outset, it appears that if you carry a laptop, a PDA or a camera that you use while travelling, then you will be spared the stick while returning. But ensure that you will not be carrying without receipt an iron, fax machine and such items since they are seldom carried as personal accessories. (If you happen to carry your own fax machine every time you travel, then preserve the sales receipt!) Trade lobby sources say that individuals moving across the border will not be harassed but only the goods vehicles will be subject to scrutiny.

The announcement on Friday by the CTD has left many worried. Newspaper ads proclaimed: “An importer other than a dealer bringing goods through checkpost shall pay immediately to the checkpost authority or the officer intercepting the goods vehicle...’’ The definition is not clear whether a passenger car carrying a family returning from a holiday in Munnar cannot be intercepted and checked. On the other hand, dealers who bring in goods from outside the state will have to pay the tax (13.8 per cent) either while selling the goods to the consumer or after one month if not sold yet.

“This is totally contrary to the concept of VAT,’’ said Tax Reforms Commission chairman Veerappa Moily. “Reforms and tax laws should not run parallel. They have to converge at some point.’’

Checkpost!

New entry tax kicks in from Friday. Brings 23 category of goods including petroleum products, electrical goods, computers under it. Both consumers and dealers are brought under this tax. Consumers will have to pay 13.8 per cent right at the checkpost. Dealers can pay after a month or after the sale of good whichever is earlier. Officials say individual consumers will not be harassed and only goods vehicles will be targeted. But there is no explicit announcement regarding this. If you are arriving via air or sea where an immediate checkpost doesn't exist, then you will have 15 days to file your returns .