Financial Daily from THE HINDU group of publications
Friday, Dec 31, 2004
Industry & Economy - Taxation
Central sales tax, additional excise will continue, says Chidambaram
Chennai , Dec. 30
BOTH Central Sales Tax (CST) and Additional Excise Duty (AED) will continue into 2005-06, even after value-added tax is introduced, the Finance Minister, Mr P. Chidambaram, said on Thursday.
Speaking at a conference on `State VAT for a common Indian market' organised here by the Associated Chambers of Commerce and Industry (Assocham), Mr Chidambaram said that abolishing CST and AED right in the first year of introduction of VAT would complicate matters. He said that the Government was trying to create a `tax information network' only after which CST/AED could be done away with. Otherwise, a lot of intra-State sales could be passed off as inter-State sales and State Governments could lose revenues, he said.
The Minister said this in response to demands from other speakers that CST should be removed when VAT is introduced.
The Finance Minister stressed that all States without exception had committed themselves to the introduction of VAT. "No State is backing out," he said. So far, eleven States have sent their Bills for Presidential assent, he said.
He reiterated his assurance that any shortfall in revenues of States would be made good by the Central Government fully in the first year, up to 75 per cent in the second and 50 per cent in the third. (The Empowered Committee has decided to take 2004-05 as the benchmark year and States could choose any three of the previous five years for calculating loss of revenue.)
However, he said, the prospect of States losing revenues was unlikely. Haryana, which has a VAT system in vogue, has seen only a rise in revenues.
Mr Chidambaram said he found empowered committees comprising representatives from all States a good mechanism to push through consenses-based economic reforms. The Empowered Committee of State Finance Ministers for VAT had agreed on 22 convergence parameters. State VAT laws on all these parameters will be identical. Some of these parameters are the rates at which VAT will be levied and the items that will be subjected to the tax.
There are going to be four rates a zero rate (exempted items), 1 per cent for gold, 4 per cent for intermediate goods and 12.5 per cent for finished goods. As of now, 530 items have been identified for VAT levy of which 265 (half) are input goods that will suffer a 4 per cent tax.
All VAT laws shall give input tax credit. "Otherwise, the law will not pass muster," Mr Chidambaram said.
He said that VAT would lower prices of goods, therefore, stimulate demand and production and hence was "economy enhancing".
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