The Hindu Business Line : VAT panel to initiate national-level talks

THE Empowered Committee of State Finance Ministers, formed to implement Value-Added Tax (VAT) in all States, has decided to distribute a White Paper on the subject to various trade bodies under the leading chambers of commerce for initiating a national-level discussion on VAT prior to its implementation from April 1, 2005.

The proposed VAT is designed to "strike a balance between commonality (among States) and federal flexibility, and also prevent unfair competition among States."

Explaining the rationale behind the introduction of VAT, and its justification vis-à-vis the existing sales tax system in States to a large gathering of industry and trade representatives at the 103rd AGM of the Merchants Chamber of Commerce (MCC) here on Wednesday, Dr Asim Dasgupta, Chairman of the VAT Empowered Committee, said for the purpose of close interaction with trade and industry on VAT, even after its implementation from April 1, a panel would soon be set up as a national body, comprising representatives of apex chambers such as the CII, FICCI and Assocham, besides representative trade bodies such as the Confederation of Trade Associations, the Federation of All-India Trade Associations and the Bharatiya Udyog Mandali.

He also announced that the existing incentives for the trade would be allowed for one year after implementation of VAT.

The phase-out of CST (Central sales tax) would begin from the second year. He put the calculated CST loss figure for all States on account of VAT at Rs 15,000 crore, which would be compensated by the Centre.

Pegged on a self-assessment system, the form for dealers would be a one-page affair, supported by invoices and cash memos. The empowered committee is also planning to install a Tax Information System for swift data collection.

Pointing out that West Bengal would take the lead in framing the simplified VAT Rules, he said VAT legislation by most of the States was ready, and a commonality has been ensured. Clarifying that the recent discussions with a senior Ministerial team from Uttar Pradesh were fruitful, Dr Dasgupta said most of the problems have been sorted out.

There would be only two rates of VAT — 4 per cent and 12.5 per cent — applicable to as many as 546 commodities. Dealers with turnover of up to Rs 5 lakh are exempt from VAT, between Rs 5 lakh and Rs 40 lakh under a simple scheme and beyond Rs 40 lakh they have to register for getting the Registration Code Number.

The Minister said a 4 per cent rate would apply to as many as 270 items, including those like medicines, all inputs and items of daily use. The remaining would attract 12.5 per cent, and besides these, there would be the special category rates for certain items like petro goods.

He said VAT would not apply to textiles, sugar and tobacco in the first year.

Earlier, Mr K.B. Agarwala, outgoing president of MCC, said from January free trade will replace the quota system in international trade, especially in textiles, and "owing to thick competition Indian enterprises will not be able to beat imports, unless the present labour laws are radically amended to provide operational flexibility for the units and a level playing field with the foreign players".

Suggesting that tax rate in India should be cut to 30 per cent for corporates and partnership firms and 25 per cent for individuals, Mr Agarwala said the surcharge, introduced as a temporary measure, should be dropped.

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