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Monday, Mar 28, 2005

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VAT on mat

B. S. Raghavan

WITH barely three days to go to hit the deadline of April 1, 2005 fixed for introduction of VAT, many are still uncertain as to the exact nature of the beast.

Although on record 21 States have decided to take the plunge, the debate on what they are letting themselves in for is yet to abate. The remaining States are blocking it, putting all kinds of pre-conditions for falling in line.

What distinguishes this landmark tax reform is the brilliant strategic move-cum-tactical manoeuvre whereby the West Bengal Finance Minister, Dr Asim Das Gupta, of CPI(M), highly respected for his financial acumen and professional calibre (he is a doctor from Massachusetts Institute of Technology), was persuaded to head the Empowered Committee comprising his counterparts drawn from States (Assam, Delhi, Gujarat, Jammu and Kashmir, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Punjab, Tamil Nadu and Uttar Pradesh) representing a variegated political spectrum to go into the feasibility and implications of the tax. The Committee's unanimous report is the result of its labours in the course of as many as 89 sittings.

There should ordinarily be no second-guessing on the merits of the tax strongly backed by a Committee of such unimpeachable credentials. Why should it then be still opposed in India, even by some of those very States which had participated in the Committee's deliberations?

It cannot be the fear of the unknown, since because of its benefits (uniformity, transparency, lesser scope for evasion due to "transaction trail", increased revenue collection, lower tax liability, lower prices for customers, ability to bring services within the tax net) 130 countries are having it as part of their tax system for many years and are happy with its working.

Presumably, the very transparency arising from the "transaction trail" it leaves making evasion impossible it has frightened the trading community which is exploiting its hold over politicians to ward it off.

There is talk of the trading firms camouflaging themselves as entities in the informal sector to avoid the tax incidence.

However, their ruses are bound to fail and their bluff soon called since more than 80 per cent of economic activities will be covered by the States which have agreed. Vive la VAT!

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