The Assembly adopted the Finance Bill 2009 on Wednesday exempting cement or concrete frames for doors and windows and paper bags, including paper covers, from value added tax (VAT).

The tax on sweets and bakery items sold under unregistered brand names, tread rubber and red oxide stands reduced from 12.5 per cent to four per cent. The tax on sweets and bakery products sold under registered brands will remain at 12.5 per cent. While there will be no tax liability on paper bags with effect from April 1 this year, the reduction of tax on tread rubber will have retrospective effect from April 1, 2005.

Subject Committee

The changes to the Bill in these respects were recommended at the report stage and the House passed the Bill as reported by the Subject Committee with a few more changes. A proposal to increase tax on pan masala, churna, pan chutney, cigars, cigarettes and other tobacco products to 20 per cent was dropped.

Finance Minister T.M. Thomas Isaac, who piloted the Bill, said that the proposal to raise the tax was sought to be abandoned as Tamil Nadu had gone back on its move to increase the rate. It would be problematic if Kerala alone went for a hike.

He agreed to consider suggestions from the members that the tax on latex and gloves should be reduced from 12.5 per cent to four per cent.

The House adopted the committees recommendation to extend the amnesty scheme proposed in the budget for public sector units to September 30 and include apex cooperative societies also in its purview. Accordingly, the cooperatives will get full waiver of interest on arrears of sales tax and surcharge and penalty and partial waiver of principal amounts of tax and surcharge.

Other amendments

As per the other amendments approved by the House, the reduced compounded rate of tax for dealers of metal crushers stands limited to those dealing in a single crushing machine of size not exceeding 30.48 x 22.86 cm. They shall pay Rs.25,000 a year as tax while others should pay the same rate as last year.

Replying to the debate on the Bill, Mr. Isaac said it would be possible to improve tax collection without increasing the tax rate. However, there would not be any benefit from reducing the rates, as the VAT rates were fixed at the optimum level. When the Goods and Services Tax is introduced, the base rate will be eight per cent.

Rejecting the Opposition demand to reduce tax on petroleum products, Dr. Isaac recalled that the previous government had actually increased the tax rate while the price of diesel nearly doubled during its tenure.

Tax from sale of gold

Referring to the lower target of Rs.180 crore from tax from sale of gold, the Minister said that the target was only to realise 1 per cent of the turnover as tax through compounding. A tax rate of four per cent was proposed as disincentive for jewellers opting against compounding.

The Bill was reported by the committee with a dissent note from Opposition members Aryadan Muhammed, K. Babu. V.D. Satheesan, K. Kutty Ahammed Kutty and N. Jayaraj. They contended that the maximum amount to be realised for compounding of offences under the Tax on Luxuries Act (Rs.4 lakh) was unreasonable. The Minister pointed out that the earlier provision was even tougher.