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`Centre holds the key in VAT system'

Our Bureau

BANGALORE, July 13

WITH States agreeing to move into the value-added tax system from April 2002, the Centre should take a pro-active role in coming up with an ideal tax model and guiding the States towards VAT.

It should also conceive a suitable package for the States, as a `fall-back revenue kitty' managed by the Centre seems essential. It was the consensus decision at a two-day national seminar on public finance in the States held here.

Mr M. Veerappa Moily, Chairman of the Karnataka Tax Reforms Committee, which jointly hosted the seminar with ISEC, today said the participants agreed that the States should move towards VAT on inter-State trade as quickly as possible, but differed on the mode of taxation.

One option is the EC model of zero rating of CST and set-off in the origin State of tax paid on inputs; but this needs cooperation among the States as it could lead to fraud.

The second option is a centrally administered tax on inter-state trade collected by the origin State. The levy may be deposited into a central pool and disbursed in proportion to ST incomes of States.

However, this issue must be resolved before the time VAT is introduced. VAT on inter-State trade, he said, will have mixed results but will also perk revenues for some States.

The Centre must also empower States to levy both service tax and VAT on declared goods and commodities that can attract additional excise duty and intra-State VAT.

However, States still need to take several steps before they can move into intra-State VAT. There are doubts among the experts whether all this can be done at once from April 2002. Before that, States should first rationalise rates, cut exemptions, combi ne existing taxes and introduce self assessment, Mr Moily said.

At the Karnataka level, the TRC is looking into transition aspects and has submitted its interim report to the Government.

Pic.: The Chairman of Karnataka Tax Reforms Commission, Mr Veerappa Moily (left), and the commission member, Mr R.V. Dada Bhavi, at a press conference in Bangalore on Friday.

Picture by G.R.N. Somashekar