Buying motor vehicles including car and bikes from other states including UT Chandigarh will cost more for Punjab based buyers as the state government has levied entry tax on vehicles bought from other states and Union Territories (UT).
The decision is aimed at preventing loss of tax revenue because of differential VAT rates as Punjab government has been losing tax revenue to the tune of over Rs 125 crore every year annum due to lower VAT rates on vehicles prevailing in other states.
Punjab cabinet on friday gave nod to levy entry tax on motor vehicles and automobiles at a rate which is the difference of VAT rate in the state vis-a-vis tax paid while bringing vehicle from other state.
"The main objective of levying entry tax is to plug the tax revenue loss caused due to vehicle being purchased from UT Chandigarh and Haryana by residents of Punjab. The state is facing a revenue loss of Rs 125 crore per annum because of differential tax rates," a senior official of Punjab Excise and Taxation department said on Saturday.
The VAT rate on vehicles in UT Chandigarh stands at 12.5 per cent while in Punjab it is 14.3 per cent. "There is a direct loss of 1.8 per cent of VAT on every vehicle purchased from Chandigarh," he said.
He said in the last nine months, Punjab faced a tax revenue loss of Rs 90 crore as people from Punjab especially from Mohali bought huge number of vehicles including 12,000 four wheelers only from Chandigarh.
People in other parts of Punjab including Bathinda also prefer buying vehicles from Sirsa in Haryana where VAT rate is 13.2 per cent, lower than that of Punjab, he added.
"With the levy of entry tax, there will be no difference in VAT rate on vehicles and the business will flow back to dealers in Punjab especially in Mohali and ultimately it will boost state revenue," he said.
In an another move, the state government also raised VAT on cigarettes and cigars from 20.5 per cent to 50 per cent which is expected to yield revenue of Rs 100 crore to the state exchequer.
Other states including Rajasthan, Himachal Pradesh, Uttar Pradesh have already raised VAT on these products to 65 per cent, 40 per cent, 50 per cent respectively.
"We have also asked Haryana government to raise VAT (20 per cent) on cigarettes and cigars so that there is no diversion of trade," he said.
Punjab government is already getting Rs 100 crore from tax on cigarettes and cigars.