Sports goods may be made tax free in Punjab- benefits and drawbacks which may arise out of it

There is a news that Punjab Govt is considering to make sports goods tax free under the Punjab VAT Act 2005. It may be a relief for the sports industry which is currently facing lot of competition from the sports industry in UP and also in the international market.

But making sports goods tax free would result in that the tax paid on the purchase of raw material by the manufacturers will be lost and no input tax credit of such tax paid will be available, since as per section 13 of Punjab VAT Act, ITC of tax paid on purchase of any goods is not available, if tax free goods are manufactured out of it.



I think if tax at a lower rate say 1%(i.e lower than tax rate as applicable on the raw material of sports goods) is levied on sports goods then it will help sports industry more than in the case of making sports goods tax free.

If tax at lower rate is levied then the tax paid on the raw material of sports goods will be admissible as ITC and consequent refund will arise as a result the cost of sports goods will decrease.

On the other hand if the sports goods are made tax free then no ITC of tax paid on purchase of raw material will be available, which will result in adding of such tax paid towards the cost of sports goods ultimately manufactured.

But one benefit which is sure and will be most welcomed by the sports industry is that they will get free from the clutches of the Department and they wont have to bother about the formalities of filing VAT returns, assessments etc, if the sports goods are made tax free.

To see the full news as published in a daily hindi newspaper click here 

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