The Hindu Business Line : VAT panel not to introduce new rate for 3 months

THE Empowered Committee of State Finance Ministers on value-added tax (VAT) does not favour, for now, the introduction of a new VAT rate between 4 and 12.5 per cent.

This position of the VAT panel has been conveyed to the Delhi Government, which had been pitching for an 8 per cent VAT rate.

"It was decided that at least for the next three months, the Empowered Committee would not consider introduction of any new rate," Mr Ramesh Chandra, Member Secretary of the Empowered Committee, told Business Line.

Under the current VAT system, covering about 550 goods, there are only two basic VAT rates of 4 per cent and 12.5 per cent. There is also a specific category of tax-exempted goods and a special VAT rate of 1 per cent only for gold and silver ornaments.

Admitting that prices of certain items that had moved from, say, the earlier 8 per cent to the VAT rate of 12.5 per cent could go up, Mr Chandra said that the Empowered Committee hoped the effect of the additional 4.5 per cent would get largely mitigated through the "set off" that would be available under the new tax system.

Mr Chandra also said the Empowered Committee was hoping that Haryana would conform to the uniform floor rate of 20 per cent on diesel that was agreed upon by all States. "Diesel may be out of VAT. But we have not given up the principle of uniform floor rates. This is very much there," he said.

While Delhi had from April 1 pegged the tax rate on diesel at 20 per cent, neighbouring Haryana and Punjab were adopting a rate much lower than the 20 per cent, thereby leading to loss of trade for Delhi.

Meanwhile, Assam is understood to have recently made a case for pegging the VAT rate on rice at 2 per cent (foodgrain). The Empowered Committee had given States the option of exempting foodgrains from VAT or imposing a 4 per cent VAT rate. This option was, however, available only during the first year of VAT implementation.

Assam is said to have contended that the move towards a 4 per cent VAT next year would be easier if the VAT rate is pegged at 2 per cent in the first year. Before VAT , the sales tax on rice in Assam was 2 per cent.

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