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5 BJP-ruled States switch to VAT

Our Bureau

CST ceiling rate remains at 4 pc


One more step
30 States and Union Territories have so far implemented VAT.
Uttar Pradesh, Tamil Nadu and Pondicherry yet to implement.

New Delhi , April 1

State-level value added tax (VAT) implementation has almost achieved nation-wide coverage, with the five BJP-ruled States switching over to the new tax regime from the existing sales tax system.

The five States that have implemented VAT from Saturday are Rajasthan, Gujarat, Madhya Pradesh, Chattisgarh and Jharkhand. These States had already completed the legal groundwork for VAT implementation.

Thus, 30 States and Union Territories have so far implemented State-level VAT. As many as 19 States and Union Territories had ushered in State-level VAT on April 1, 2005 — the date that was set by the empowered committee of state finance ministers on VAT for introduction of this new tax system.

Haryana had implemented VAT in 2003. While Meghalaya and Assam implemented VAT from May 1, 2005, Manipur did it in July and Uttaranchal on October 1. Chandigarh implemented VAT from December 15.

Only two States — Uttar Pradesh and Tamil Nadu — and the Union Territory of Pondicherry are yet to implement this new tax regime. Both Andaman and Lakshwadeep do not have a sales tax system.

CST issue unresolved

Raising various concerns about the VAT system, the BJP-ruled States had kept away from VAT implementation during fiscal 2005-06. Without specifying a timeline, the party high command had, however, in December 2005 given an in-principle nod for the adoption of VAT by these States.

Even as the five BJP-ruled States implemented VAT from Saturdayone of the key concerns raised by the BJP — the issue of central sales tax (CST) — remains unresolved.

With the Centre and the States yet to work out the modalities of compensation for an appropriate phasing out of CST, the ceiling rate on CST remains at 4 per cent. For trade and industry, this was a sore point as they were expecting a ceiling rate cut from 4 to 2 per cent from April 1, 2006.

The VAT Panel had also earlier indicated that this rate would come down to 2 per cent from April 1, 2006. However, this has not happened. A joint working group of the Centre and the States has now been set up to work out the modalities of compensation for an appropriate phasing out of CST. The annual CST collection during 2005-06 is estimated to be around Rs 18,000 crore.

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