Debating India

20 States introduce VAT

Saturday 2 April 2005

By Our Special Correspondent

NEW DELHI, APRIL 1. Even as the trade associations continued with their third-day strike against the imposition of the Value Added Tax (VAT), 20 States ushered in the new tax regime on Friday in keeping with their commitment to the Chairman of the Empowered Committee of State Finance Ministers, Asim Dasgupta, a few days ago.

With Meghalaya expected to join the VAT bandwagon some time next week, the implementation of the new taxation system by these 21 States marks a bold and historic step in replacing the age-old sales tax with a far more rational levy that is expected to prevent the cascading effect of multiple taxes which were applicable hitherto, while checking evasion and thereby enhancing the accrual of State revenues.

"Twenty States have switched over to VAT today. Meghalaya will join them next week," an elated Secretary of the Empowered Committee, Ramesh Chandra, told newspersons here. Mr. Chandra also expressed confidence that Tamil Nadu might join the band of 21 after the Assembly elections in the State.

The change, however, would not have been possible without the "compromises" by way of assurances and additional incentives that have been sanctioned in recent weeks. While the Finance Minister, P. Chidambaram, assured the State Governments that their losses in revenue, if any, on implementation of VAT would be adequately compensated, the Empowered Committee announced doubling of the exemption limit for traders from Rs. 5 lakhs to Rs. 10 lakhs. It also slashed the composite tax rate from one percentage point to 0.25 per cent for traders having a turnover of Rs. 10 lakhs to Rs. 50 lakhs.

A few States reluctant

Despite these sops, at least eight States remain unconvinced and have decided to continue with the old sales tax regime. Among them are the five BJP-ruled States - Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh and Jharkhand - which have made it clear that the Central sales tax (CST) will have to be withdrawn completely as a pre-condition of VAT implementation. The Centre, on its part, has promised to phase out the CST in three years.

The other three reluctant States, as of now, are Uttaranchal, Uttar Pradesh and Tamil Nadu. Among these, Uttar Pradesh has noted that VAT would be implemented in the State only when the traders give their consent to the new system.

Efforts, however, will be made in the coming days to make these States also fall in line.

According to Mr. Chandra, the VAT committee will hold further talks with the BJP leaders soon to persuade them to change their stance. Similarly, renewed efforts are to be made to placate the Uttar Pradesh Chief Minister, Mulayam Singh Yadav.

On the contrary, the traders’ associations are likely to continue their strike beyond the three days initially planned.

Trade bodies from all over the country are planning to meet in Jaipur on April 6 and 7 to chalk out their future course of action.

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