Financial Daily from THE HINDU group of publications
Tuesday, Dec 13, 2005
Industry & Economy - Taxation
BJP meet gives in-principle nod for VAT adoption; raises fresh concerns
The BJP President, Mr L.K. Advani, flanked by the party Vice-President, Mr Venkaiah Naidu (left) and Mr Jaswant Singh, with (standing from left) the Bihar Deputy Chief Minister, Mr Sushil Kumar Modi; the Rajasthan Chief Minister, Ms Vasundhara Raje; Mr Shivraj Singh Chauhan (Madhya Pradesh); Mr Arjun Munda, (Jharkhand); Mr Narendra Modi (Gujarat); and Mr Raman Singh (Chhattisgarh), at a meeting in the Capital on Monday to discuss the introduction of Value Added Tax in BJP-ruled States. Ramesh Sharma
New Delhi , Dec. 13
THE Bharatiya Janata Party (BJP)-ruled States on Monday raised a slew of concerns, including some fresh ones on the proposed State-level value added tax (VAT) system, even as the party high command gave an in-principle nod for the adoption of VAT by these States.
No timeline for adoption of VAT was, however, arrived at during the day-long deliberations at the conference of Chief Ministers of BJP-ruled States held in the Capital on Monday.
The Chief Ministers of Gujarat, Rajasthan, Madhya Pradesh, Chattisgarh and Jharkhand and also the deputy Chief Minister of Bihar attended the meeting.
"The conference has decided that all concerns identified and discussed today would be taken up with the Empowered Committee that is due to meet on December 16," Mr Jaswant Singh, senior BJP leader, told newspersons later.
He said that the Finance Ministers of the BJP State governments would meet on December 15 and formulate their combined position on various issues, which would then be taken up with the VAT Panel.
VAT revenue loss compensation and compensation to States that would lose on account of the phase out/abolition of Central Sales Tax (CST) still need to be addressed, according to the BJP-ruled States.
The BJP is now waving the "equity" card and insisting that compensation for loss of VAT revenue needs to be provided to the extent of 100 per cent in the first year of adoption of VAT.
"The first year should be measured from the date a State starts adopting VAT," a BJP official later told Business Line.
This position is in contrast to the existing arrangement between the Centre and the States, whereby 100 per cent compensation on VAT revenue loss would be available only for those States that implement VAT during the fiscal year 2005-06.
On the issue of CST, the BJP today said that the roadmap for abolition of CST still remains unclear. "Even assuming that the empowered committee will recommend its reduction to two per cent from April 1, 2006, issues would still remain concerning compensation to the States, which will lose on account of abolition of CST," the BJP said. At the conference, the problems of States with primary resources, such as Chhattisgarh and Jharkhand, which will suffer revenue loss on account of reduction/abolition of CST were highlighted.
The Centre has been requested to provide fiscal compensation to such States.
In that connection, the proposals made in the 10th Plan mid-term appraisal document for higher royalty in coal and other mineral and for having devoted large areas to forests are important, the BJP has said.
The BJP has also raised the issue of flexibility given to States exempting items of local importance from the purview of VAT.
At present, each State can categorise 12 items as goods of local importance and not levy VAT on such items.
The BJP-ruled States are of the view that this limit of 12 items is inadequate, and, therefore, needs to be expanded.
Further, the BJP has now said that the decision of some of the major States, particularly Uttar Pradesh, to remain outside the system is an issue of concern.
The Party now wants the VAT Panel to formulate proposals for enhancement of avenues of State finance by measures such as devolution of service tax to the State.
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