Lucky VAT: A novel plan to collect tax

The state government of Kerala will introduce 'Lucky VAT' - a novel lottery scheme to improve sales tax collections from August 29.

According to official sources, this is for the first time that a state government is introducing a lottery scheme to encourage consumers to take a bill for purchases they make. Chief minister V S Achutanandan will inaugurate the scheme.

As per the scheme, every consumer who buys goods worth Rs 1,000 and above, which attracts VAT, will get a scratch card that carries a maximum cash prize of Rs 1,00,000.

Shop-owners will disburse scratch cards for purchases below Rs 5,000, and consumers will have to approach the nearest branch of the Kerala State Financial Enterprise for purchases above Rs 5,000.

The scheme is being introduced in accordance with a proposal made by finance minister Thomas Isaac in his maiden budget in June 2006.

He said the lottery scheme was adopted from Mexico where it proved to be successful. "The scheme has been conceived against the backdrop of falling sales tax revenue since the introduction of VAT in April 2005."

This is contrary to other states where commercial tax revenue has increased considerably after the implementation of VAT.

Kerala registered a meagre growth of 6.2 per cent in tax collection while Punjab clocked 39% and Delhi 25 per cent increase in in Q1 of 2005-06.

The total commercial tax revenue in Kerala increased to Rs 1,206.31 crore (Rs 12.06 billion) in Q1 of 2005-06 from Rs 1,136.33 crore (Rs 11.36 billion) in the corresponding period of the previous fiscal. Tax collection in Punjab increased to Rs 1082.45 crore (Rs 10.82 billion) from Rs 778.73 crore (Rs 7.78 billion).

There has been widespread criticism among traders over the introduction of VAT in Kerala. Prices of most of the commodities have increased during the last one year giving rise to suspicion that there has been a move to sabotage the VAT regime.

Kerala has a total annual business turnover of more than Rs 1,00,000 crore (Rs 1000 billion), but the average revenue collection is around Rs 4,500 crore (Rs 45 billion).

Thomas Isaac, in his budget speech, said that revenue from gold business was a paltry Rs 30 crore (Rs 300 million) while the annual turnover touched Rs 10,000 crore during 2005-06.

Keeping this in view, the LDF government enhanced the rate of sales tax on gold and jewellery to 4 per cent from 1 per cent in the revised budget.