The Hindu : Business : VAT regime from April 1, asserts Chidambaram

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Friday, Dec 31, 2004

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VAT regime from April 1, asserts Chidambaram

By Our Special Correspondent

The Union Finance Minister, P. Chidambaram, along with the President of Assocham, Mahendra K. Sanghi (extreme left), and the President of Madras Chamber of Commerce and Industry, Murali Venkatraman, at a press conference in Chennai on Thursday. — Photo: N. Balaji

CHENNAI, DEC. 30. Rejecting an "all or nothing'' or "feast or famine'' approach, the Union Finance Minister, P. Chidambaram, today asserted that the State-level value added tax (VAT) regime will come into force on April 1, 2005, with no change in the present position regarding Central sales tax (CST), pending a review during the next fiscal year.

Continuation of the CST at the time of switch-over from general sales tax to VAT will help avoid complexities at the initial stage.

Also, it would be risky to abolish the CST until the proposed tax information system (TINSYS) was fully in place to ensure that intra-State sales were not disguised as inter-State sales, he said.

Inaugurating a conference on "VAT for a common Indian market — issues and challenges,'' organised by the Associated Chambers of Commerce and Industry of India (Assocham) and the Madras Chamber of Commerce and Industry (MCCI) here, the Minister also rejected suggestions that all "glitches'' should be identified and removed before State-level VAT was introduced. The right approach would be to stick to the deadline and tackle problems in the operation of VAT as and when they arose.

Mr. Chidambaram said, "All States are on board (on the issue of introduction of VAT) — let there be no mistake about it.'' The Empowered Committee of State Finance Ministers had issued 22 "convergence parameters'' to which all States would adhere in formulating their VAT legislation and rules.

Even in the case of goods of special importance to individual States, freedom of identifying the commodities and fixing rates was restricted to ten items, which too would have to be approved by the committee.

`All States on board'

The Finance Minister said it was a "master-stroke'' (on the part of the National Democratic Alliance government) to have "kept the Left on the right side'' of the VAT agenda by making the West Bengal Finance Minister, Ashim Dasgupta, head of the Empowered Committee when it was formed.

The present Government, in line with the policy of "cooperative federalism,'' had expanded the committee to include all States and this had proved beneficial.

Emphasising that VAT — as a system that avoided tax on tax — was not new to the country and had been in force for two decades in the case of Central Excise, he said India could not afford to avoid or delay introduction of VAT at the State level. As many as 130 countries had switched over to VAT and reaped benefits.

Creating awareness

Awareness should be created among wide sections of the public, including small traders, through the regional language media, that the present single-point system of sales tax was in reality a multi-point tax because the inputs were taxed repeatedly at different points in the chain of transactions till a final product was sold. Under VAT, the consumer paid tax just once on the whole value of the product.

By creating a vested interest among traders in observing honesty in the matter of issuing invoices, VAT would plug revenue leakage and at the same time usher in virtually total self-certification (of taxable turnover). Those below the Rs. 5 lakhs threshold could opt for VAT registration (to attract more buyers).

The threshold of Rs. 5 lakhs would lead to 75 per cent of traders being outside the tax net, while the option of compounding VAT liability with a turnover tax for turnovers between Rs. 5 lakhs and Rs. 40 lakhs was another small-trader-friendly decision.

The Empowered Committee had also decided that input tax credit would be given for stocks as of April 1, 2005, Mr. Chidambaram added.

The President of Assocham, Mahendra K. Sanghi, said the VAT system should provide for maximum simplicity and self-certification in the interest of small traders.

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