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Ambitious new bankruptcy code may take years to clean up India's debt mess. Pictured: An employee counts Indian currency notes at a cash counter inside a bank in Kolkata, 18 June, 2012 [Representational Image]Reuters

The Delhi government, which would present its budget for 2016-2017 in the assembly Monday, may propose measures that could make Delhi India's lowest value added tax (VAT) regime state. 

In the budget, the Aam Admi Party may initiate rationalisation of VAT rates, even though VAT is a major source of revenue for the government.

Some items, such as meals in restaurants, bathroom fittings, marble tiles, that are currently attracting 12.5 percent VAT could be moved into the five percent VAT category, the Economic Times reported. In addition, varying VAT rates on items such as shoes and garments may be brought down to a single rate structure. 

The aim of rationalising VAT rates on commons items is to reduce the common man's burden of paying taxes, according to the report. 

Reshuffling the VAT on certain items would also streamline tax collection operations. However, some of the items currently under the "exempted list" would also be pushed into the five percent tax category, the ET report added.

Delhi's VAT is a six-layered structure: (source: ET report)

Items VAT % levied
CNG, PNG, Rice and Wheat VAT exemption
Gold bars, Silver bars, precious metals 1%
Shoes, garments, phones below Rs 10,000 5%
Hardware, restaurant meals 12.5 %
Alcoholic beverages, luxury watches 20%
Petroleum, diesel products, ATF fuel 18-30 %

In February 2015, the Aam Admi Party was elected to form the government in Delhi. In its election manifesto, the AAP had promised an action plan for streamlining Delhi's tax system. The party had promised it would simplify the tax system, digitalise taxation and licensing procedures and ensure Delhi would have the lowest VAT rates in the country. 

On Saturday, the Aam Admi Party announced that the current VAT collections in the state had crossed Rs 20,000 crore in the current financial year. Last year, the government had set a target of Rs 21,000 crore revenue generation from VAT, the Financial Express reported.

[1 lakh = 100,000 | 1 crore = 10 million | 100 crore = 1 billion]