After the Centre, the states have joined the fight against inflation. Later this month, they will discuss a proposal to exempt rice, wheat and pulses from value added tax.
Most states levy 4 per cent VAT on the three items of mass consumption, while some states do not tax them at all.
"The Empowered Committee of State Finance Ministers on VAT will meet on July 21 to take a view on whether rice, wheat and pulses should be brought under the exempted category," an official source said.
Prices of food products, including wheat and pulses, have been blamed for the spurt in inflation, which touched a two-year high of 6.7 per cent in January. It has since softened to around 4 per cent.
Food inflation, which rose to about 10 per cent in January this year, now hovers at 5 per cent. Food articles carry a weight of 15.4 per cent in the Wholesale Price Index basket.
To control the prices of wheat, the Centre banned futures trading as well as exports, allowed duty-free import of wheat and raised its procurement price by Rs 150 a quintal.
It has also banned futures trading in some pulses and asked its agencies to import 1.5 million tonnes of pulses during the year.
Before a final decision on exempting wheat, pulses and rice from VAT is taken, the states will consider the revenue loss arising out of the move, as the central government is unlikely to compensate them.
"What needs to be seen is how the states propose to make up for the loss. They may consider increasing the VAT rate on some other items," said Pratik Jain, director, KPMG.
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