Do you know how state government contributes to Inflation via VAT ?

tax inflation

You must be aware that government imposes 20 types of taxes on us.  Most popular among these taxes are income tax & service tax. Government collect these taxes to build nation (infrastructure & other development), to increase arms and ammunition for defense of country and for other welfare related work.

In today’s situation although tax is becoming single largest expense for individual, individual  pay taxes to government thinking government will use this money for country’s betterment. But unknowingly/knowingly we pay certain tax to government which causes adverse impact on us and our lifestyle. Let’s understand what Inflation is and how taxes affect us adversely by increasing inflation.

What is Inflation:-

Every day we hear that price of goods / material is increasing. Many people say that government has control over inflation & government can makes certain policy to control this price rise (inflation).  Do you think it is really happening?

The table & graph below provided below to check an indication of the inflation rates of India in the last ten years: -

inflation graph

Above figure indicates that despite of effort placed by government inflation is still increasing.

“Common middle class man who was able to run his household expense in 10,000 Rs/- per month cannot even run his monthly expense in 30,000 Rs/-. All this is because of inflation. Government may say that standard of living has improved but real part of story is something else.”

VAT contributes to increase in Inflation:-

VAT (value added tax) is tax imposed by state government on consumption of any item.  As per name it adds additional value (cost) to product so that product becomes costlier.  We give this tax to state government if we want to buy any item for consumption. This tax proposition varies from state to state & item to item.

So to theory is that if you consume something you pay tax, more you consume more you pay. I will give you very simple example to make yourself clear how government contributes to Inflation via VAT?

Petrol, diesel and natural gas are fuel most people cannot imagine life without is. These fuel rates decide transportation cost for the product and rise in fuel price cause means rise in product cost & inflation.

E.g  FMCG Product X costing 20 Rs/- today if fuel price increase this product will cost you may be 25 Rs/- due to increase in transportation cost.

Do you know that at Andhara Pradesh state government charges 34% on petrol?

This means If petrol price is quoting 75 Rs/- liter than per liter we gave 25.50 Rs/- to government.

Do you know that at Goa state government charges only 0.1% on petrol?

In state of Goa petrol is charged with VAT of 0.1% that is just to record transaction. So in Goa approximately petrol is 11 Rs/- lower in price compare to other state. Petrol in Goa is costing approximately 61 Rs/- per liter.

If Goa Government can do that why other government cannot?

State wise VAT rate on Petrol and Diesel:-

VAT petrol statewise

Apart from petrol we pay VAT to almost every goods at varying rate from 5% to 15%. So VAT is causing nothing but additional cost (inflation).

Even government has less interest on reducing this rate as VAT contributes more that 50% of the state’s revenue.

They don’t want to lose revenue but they are ok with increase in inflation.

Apart from this central government has also increase service tax to 12.36% additional contribution to inflation.

If you think government should reduce VAT on petrol or other taxes do post you comment below. Also share this article with everyone.

At last I would like to share small joke:-

Joke on heavy VAT on petrol:-

Previously Goa was famous following

- Nice Travel Destination

- Nice Beaches

- Good Kaju’s

- Now Goa is famous for Petrol price also.

People use to bring Kaju from Goa now people will bring petrol from Goa!

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