Gold and diamond jewellery sold in the state of Maharashtra will now have a 1.2% VAT levied on them as against the 1% applicable earlier. This follows the announcement by the state government of additional levies on a slew of items in an attempt to raise Rs 1,600 crore to aid drought affected areas.

Besides gold and diamond jewellery, other items that will now attract a higher VAT are petrol and diesel, cigarettes, soft drinks and alcohol.

The levy takes effect from October 1 and will initially be for a period of five months, state Finance Minister Sudhir Mungantiwar said.

The funds raised in this manner will be used for relief and rehabilitation measures in Maharashtra’s drought-hit districts.

Over four decades ago, in 1973, the Maharashtra government had levied a professional tax to assist farmers affected by severe drought conditions.

While diamond and jewellery trade members expressed their willingness to contribute towards such welfare measures, some said that there should be greater transparency in the manner in which the funds are utilised, while others feared that the additional levy may lead to a rise in off-the-book accounting practices.