The Hindu : Tamil Nadu News : `VAT won't have cascading effect'

Online edition of India's National Newspaper
Monday, Jan 31, 2005

Tamil Nadu

Tamil Nadu

`VAT won't have cascading effect'

By Our Special Correspondent

CHENNAI, JAN.30. Even as the Union Finance Minister, P. Chidambaram, described the consensus evolved by the Empowered Committee of State Finance Ministers (ECSFM) on the value added tax (VAT) as a big progress in the federal system of governance, the Committee Chairman, Asim Dasgupta, said rice and other foodgrains would be exempted from taxation.

Addressing representatives of trade and industries and leaders of political parties on the VAT, Mr. Chidambaram said 130 countries had introduced the tax in view of its "positive" features.

The decision to introduce the VAT was taken by the committee comprising Finance Ministers of 28 States and two Union Territories.

The advantage of the VAT would become clear when compared with the multi-point sales tax.

It would not have a cascading effect and was devoid of stringent penal provisions. Small dealers with an annual gross turnover not exceeding Rs. 5 lakhs would be exempted from tax, he said.

Centre's efforts

Recalling the efforts made by the Centre since 1994 on the VAT, he said the committee, set up in November 1999, met 90 times to evolve a consensus on the new tax system.

Out of 550 goods brought under the VAT, 270 would incur a mere 4 per cent tax and the rest would fall under the general VAT rate of 12.5 per cent.

Around 46 commodities that had social implications, including 10 items flexibly chosen by the States, were exempted.

Problems that came up while implementing the VAT would be looked at by the committee with an open mind, he said.

Referring to the committee's achievement in reaching a consensus on the VAT, Mr. Chidambaram said the same spirit of cordiality and mutual trust should be extended to other fields to bring about a "remarkable positive change" in the nation's federal polity.

Higher revenue growth

Highlighting the importance of the VAT, Dr. Dasgupta said it would help consumers, traders, industrialists and the Government, as it provided for a set-off for input tax as well as tax paid on previous purchases, abolition of turnover tax, surcharge and additional surcharge, rationalisation of the overall tax burden, reduction in prices, self-assessment by dealers, enhanced transparency and higher revenue growth.

Unhealthy competition

The uniform tax rates would help to avoid unhealthy competition among the States, he said. The new system would make the federal set-up flexible, besides putting an end to `Inspector Raj.'

He denied that the Centre imposed the VAT on the States.

Responding to Tamil Nadu's plea for exemption of rice from the VAT, he said the State was free to keep not only rice but also other foodgrains under the exempted category as per a decision taken by the committee.

The committee would deliberate upon the request for exempting agricultural inputs. The Union Cabinet decided a couple of days ago that the shortfall in State's revenue would be made good by the Centre at the rate of 100 per cent in the first year, up to 75 per cent in the second and 50 per cent in the third.

Traders' apprehensions

The State Finance Minister, C. Ponnaiyan, and the Commercial Taxes Minister, C.Ve. Shanmugam, said steps must be taken to allay the apprehensions of traders that they would be asked to maintain detailed books of accounts and that small traders would be brought under the tax net. Consumers also suspected that the prices of essential goods might go up.

The State demanded that it be compensated for the loss on account of implementation of the VAT.

Otherwise, the State would face a financial crisis, he said. Demanding incentives for agro-based products, he said tea grown by small and marginal growers should be kept under the lower end of the VAT.

Ramesh Chandra, Secretary, ECSFM, took part in the meeting.

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