New states to get VAT boost

Both the new state governments in Telangana and the residuary state of Andhra Pradesh will be under heavy financial constraints to fund the existing welfare schemes, besides payment of salaries for government staff due to limited budget resources post bifurcation.

At present, VAT is a major contributor to the state exchequer. Even in the vote-on-account Budget approved by the Legislative Assembly in February this year, the revenue collection from VAT alone was pegged at Rs 62,000 crore, amounting to 73 per cent of total tax revenue estimate of Rs 84,750 crore.

The VAT collected this month, amounting to nearly Rs 8,000 crore, would be credited in the treasuries of both the new states on June 2. The amount will be distributed in proportion to the population in both the states and it is expected that each state would get nearly Rs 4,000 crore in June, giving some ‘financial flexibility’ to the new governments to run the show for an initial period till all other bifurcation-related matters are sorted out.

From June 2, traders have to pay VAT to their respective governments and the actual position on VAT revenues in both the states will be known from July.

However, it is believed that the Telangana state will have an advantage with more VAT collections, since most of the businesses operate from Hyderabad, being the capital city. On the other hand, the new AP government has to pin its hopes on Seemandhra firms to move their base from Hyderabad to any location in Seemandhra as early as possible to increase its VAT share.

The commercial taxes department has already started online registration facility for traders to choose the place of business and to establish their business headquarters after June 2. Accord-ingly, new Taxpayer Identification Number (TIN) will be issued to traders based on which they have to pay monthly VAT to the respective governments.

Seemandhra leaders from various parties are already urging all public and private sector industries and co-mpanies to shift their administrative offices and head offices from Hyderabad to any suitable location in Seemandhra. They are urging major firms such as AP Paper Mills, Avanti Foods, Coromandel Fertili-sers, pharmaceutical companies such as Hetero, Reddy’s Labs, Aurobindo, besides major oil companies like ONGC, Reliance, GAIL, British Petrol-eum, HPCL and GSPC, to shift their offices from Hyderabad to Seemandhra.

However, with the capital city for Seemandhra yet to be announced, many firms are confused over where to set up their offices.

Senior officials of the commercial taxes department remain tight-lipped on the issue citing ‘election code’ till May 27.