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Jury still out on VAT revenue buoyancy — Collections show mixed picture

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"Consuming States with less industrial activity would see their revenues go up as there is no input tax credit to be given."

THE initial collection trends during the first few months of the new Value Added Tax (VAT) regime indicate that States that are primarily consuming regions with no great manufacturing activities to show are seeing robust increase in tax receipts.

This trend is, however, not visible in manufacturing and export-intensive States, reckon some of the tax experts.

The National Capital Territory of Delhi (NCT) has already witnessed a 20 per cent jump in tax collections in the current fiscal, say officials in the Delhi Government. Sales tax collections of Delhi for April-June 2004 stood at about Rs 1,030 crore and collections during the same months of the current fiscal would be around Rs 1,200 crore, though the exact figure has not been announced officially.

But VAT department officials want to play down the buoyancy in revenues. "The collections so far in the current fiscal are not pure VAT collections. It is premature to come to a conclusion that VAT implementation has led to buoyancy in tax revenues. We have just received the first monthly return (for May)," Mr R.K. Verma, Delhi VAT Commissioner, told Business Line.

A peculiar feature of the erstwhile Delhi sales tax system was that the sales tax was imposed at the last point on approximately half the commodities and no tax was imposed on inputs used in producing goods falling under the last-point system.

In Maharashtra, which is a manufacturing-intensive State, the tax collections so far in the first quarter had seen a 4 per cent growth as against a normal growth rate of 20 per cent. In Mumbai, commercial tax receipts so far stood at Rs 2,354 crore. According to Mr B.C. Khatua, Commissioner of Sales Tax, Maharashtra, it would be difficult at this point of time to come to any conclusion that VAT had led to revenue-buoyancy in the State.

In Kerala, tax receipts in April, following the introduction of VAT regime, was Rs 118 crore, marginally higher than the Rs 102 crore recorded in the same month last year. However, in May, the receipts came down to Rs 492 crore from Rs 518 crore in the same month of the previous year.

Tax experts say that States with large manufacturing base and strong exports are likely to face some revenue loss on account of VAT implementation at the end of the current fiscal.

"Consuming States with less industrial activity would see their revenues go up as there is no input tax credit to be given. Further, in a VAT regime, the point of levy has also shifted from first point to last point and therefore there would only be additional revenues for such governments," said Mr Mahesh C. Purohit, Director, Foundation for Public Economics and Policy Research.

In Andhra Pradesh, there has been a very small increase in the tax collections in the first two months. In April and May, the commercial taxes department of Andhra Pradesh had clocked revenues to the tune of Rs 1,448.94 crore as against Rs 1,443.96 crore last year, a growth of 1.34 per cent.

These collections include sales tax on petrol and diesel. If the revenues from these heads are deducted, there is an actual decline to the extent of 2.93 per cent. Officials associated with VAT implementation attribute the decline to provision for input tax credit as well as lowering of tax rates in the VAT regime.

They point out that in the first three weeks of June this year, collections were approximately Rs 842 crore, lower than Rs 900 crore collected in the same weeks of June 2004. In fact, Andhra Pradesh expects to lose more than Rs 800 crore in the first year of VAT implementation.

Incidentally, a number of States did not have ready information on the VAT collection trends for even the first two months of the current fiscal.

(Inputs from K.R. Srivats, Rahul Wadke, Vinson Kurian, M. Somashekar.)

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