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VAT in Tamil Nadu next year

Friday 22 July 2005, by JAYANTH*V.

State Government not willing to take risks, politically or financially

CHENNAI: Industry and trade have come to accept the fact that Value Added Tax will not be implemented in Tamil Nadu this financial year.

They do not expect to see it in force till the second half of 2006-07, considering that the elections to the Assembly are due in May.

Besides, it may not be possible to switch over to the new tax regime from April 1, 2006, which could have been a convenient deadline.

This is the feedback industry sources have received from the administration. There are both political and financial reasons for putting off the decision, they have been told. Initially, the State Government planned to join the majority of States in adopting VAT from April 1, 2005.

Though over 20 States did that, Tamil Nadu slipped out of the net expressing concerns at the possible revenue loss and the Centre’s reluctance to offer 100 per cent compensation for the first three years.

The Centre agreed to a 100, 75 and 50 per cent compensation for the first three years on the ground that the States would only stand to gain, not lose on account of VAT.

The basic objective of VAT is to ensure that there is no tax on tax. In the existing multi-point taxation system, tax is levied on goods that have already been taxed at a previous stage.

In VAT, the next stage of tax will look at only the value added and also offset the tax paid at the previous stage.

Despite an Empowered Committee of Finance Ministers arriving at a consensus on its implementation, not all the States came on board.

Essentially, it was the non-Congress ruled States that did not switch over and Tamil Nadu along with the BJP-ruled States stayed out of it.

Finance Minister C. Ponnaiyan attributed many reasons for this decision, but two stood out - there needs to be a broad consensus among all sections of trade and industry as also the political spectrum, and some of the items which were not taxed in the State were not being included in the "exempted list" under VAT.

With an influential section of traders opposing VAT and the financial implications not clear, the State Government has apparently decided to put it off.

It does not want more problems in an election year and officials argue that one year of implementation in other States will show up all the problems and provide useful lessons so that it could adopted smoothly next year - after the elections.

See online : The Hindu

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