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K.R. Srivats

NEW DELHI, March 11

IT'S a dilemma that is agitating the minds of the members of the Empowered Committee of State Finance Ministers on value-added tax (VAT).

The question before them is whether they should continue with the current forms system being used by exporters for tax exemption or move into a deposit and refund system.

While a section of administrators are in favour of moving away from the forms system, which is considered as the biggest source of harassment and corruption in sales tax administration, the exporting community is resenting the idea of a deposit and refund system.

With less than three weeks to go before the States are expected to move into a VAT regime that would replace the sales tax system, the Empowered Committee is yet to arrive a solution on the matter of choosing between the forms system or a deposit and refund system.

"As of now, an optimal solution is not in sight. We are seized of the problem and in touch with different agencies," Mr Ramesh Chandra, Secretary, Empowered Committee of State Finance Ministers on VAT, said.

"While eliminating the forms system, we also don't want to end up increasing the transaction cost of exporters."

The exporting community, especially the members of the Federation of Indian Export Organisations (FIEO), claim that a deposit and refund system would be more burdensome for them as it would entail locking up of working capital.

"We would rather prefer an imperfect system of forms than going in for the deposit and refund system. We are familiar with the delays that take place in the refund of duty-drawback at the Centre," an exporter said.

Exporters in Delhi, a distributive export centre, are particularly apprehensive of the deposit and refund system as they contend that problems in such systems would only lead to flight of trade from the region.

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