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Luxury tax militates against Centre-States' pact: Experts

Our Bureau

Kolkata , Jan. 21

CORPORATE watchershave said that the levy of State-level taxes in various forms, such as luxury tax, entry tax and octroi, militate against the understanding between the Centre and the States arrived in 1955 at a National Development Council meeting.

They said this commenting on the Supreme Court verdict holding that States had no legislative competence to levy luxury tax on goods such as cigarettes & related products and gutkha, as these had no service component attached to them,

It is pointed out that the States had actually agreed to give up their right to levy such taxes on tobacco in lieu of which additional excise duties was levied by the Centre and distributed exclusively to the States as per recommendations of the Finance Commissions.

This kind of arrangement of taxation and tax assignment, according to the experts, recognises the high degree of sensitivity of taxes on the cigarette trade, and truly embodied the principle of uniform single point taxation.

It is pointed out that Dr Manmohan Singh, in his previous avatar as finance minister some eight years ago, had written to the States that they should forego their apportioned share of additional excise, as per the said agreement, if they continued to levy luxury tax. Levy of luxury tax on cigarettes by States is tantamount to an infringement of this agreement between the Centre and the States, some experts point out.

Cautioning that multiplicity of State-level taxes imparted a cascading effect to an already highly taxed commodity such as cigarettes, one tax expert said differential rates of such taxes tend to distort the trade mechanism and undermine the economic benefits of a large common market.

ITC, it may be recalled, had contested the levy of such tax before several High Courts and the Supreme Court, and was hopeful of a favourable outcome.

The levy of entry tax and luxury tax in Andhra Pradesh, Kerala, Tamil Nadu and Delhi has already been stayed by the respective courts. But ITC, by way of abundant caution, had continued to provide for the disputed amounts in its annual accounts.

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