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Wednesday, Dec 06, 2006

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With passing of Bill, TN moves into VAT system

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Traders with turnover of up to Rs 10 lakh exempted

Taxable, exempted items
Goods taxable at 4 per cent include capital goods, farm kits, yarn etc
Goods exempted include sugar, woven fabrics, unmanufactured tobacco etc


Chennai , Dec. 5

The Tamil Nadu Assembly on Tuesday passed a Bill paving the way for a value-added tax system from January 1, 2007.

The Bill — Tamil Nadu Value Added Tax Act, 2006 — repeals the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act 1 of 1959). With this, barring Uttar Pradesh and Pondicherry, all States have moved over to VAT, replacing the general sales tax system.

The State Commercial Taxes Minister, Mr S.N.M. Ubayadullah, introducing the Bill, said that the decision by the Government had been long awaited by the traders. The State VAT provides for exemption to small traders with a turnover of up to Rs 10 lakh and those with a turnover of Rs 10-50 lakh have the option of a compounding rate.

Under the Act, there are three rates of tax — 1 per cent, 4 per cent and 12.5 per cent, apart from exempted items and select items such as alcohol and petroleum products, which are taxed separately.

Bullion, including gold, silver and platinum, jewellery, precious stones and semi-precious stones, are taxable at one per cent.

Goods taxable at 4 per cent, which covers the largest range, include capital goods, agricultural implements, yarn, chemical fertilisers, communication equipments, computer stationery, drugs and medicines, foods and food preparations, medical equipment, all varieties of paper and windmills.

The Act provides for compounded rate for hotels, restaurants and sweet stalls. Where the total turnover is between Rs 10 lakh and Rs 25 lakh the rate of tax is Rs 12,000 per year; for Rs 25 lakh and Rs 30 lakh it is Rs 24,000; for Rs 30 lakh and Rs 40 lakh it is Rs Rs 36,000; and where the total turnover is between Rs 40 lakh and Rs 50 lakh the tax rate is Rs 48,000.

Goods exempted from tax include sugar, woven fabrics, unmanufactured tobacco and tobacco refuse and manufactured tobacco such as smoking mixtures for pipes and cigarettes and chewing tobacco.

Tax on liquor

Alcoholic liquor from outside the State other than foreign liquor is taxed at 58 per cent, alcoholic liquors other than foreign liquor at 58 per cent in the first point of sale and at 38 per cent in the second point of sale, foreign liquors at 73 per cent, molasses at 30 per cent and sugarcane at Rs 60 a tonne at the point of last purchase.

All other goods are taxed at 12.5 per cent.

Significant move

The Minister said that the shift to the new taxation system was a significant change. It leaves out the small traders from the tax net and moves to a self-assessment based system, a major benefit to taxpayers. The delay in Tamil Nadu shifting to VAT represents a loss of Rs 375 crore to the State in terms of compensation for revenue loss from the Centre.

It may be recalled that with VAT centred largely around three rates the overall tax rates have been brought down in Tamil Nadu. Officials earlier had mentioned that Tamil Nadu's revenue neutral rate is well above 15 per cent under the current general sales tax because its tax rates go up to 20 per cent. (There are 7 tax rates apart from 3 per cent on inputs at concessional rates, surcharge of 5 per cent, and additional sales tax and resale tax of 1 per cent.) Most other States' revenue neutral rate is lower than 12.5 per cent.

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