Kerala - Thiruvananthapuram   

VAT will bring down prices: expert

By Our Staff Reporter

THIRUVANANTHAPURAM, MARCH 31. The Value Added Tax system, which comes into effect in Kerala from Friday, will lead to increased turnover and lower tax burden for traders, enabling them to drive down prices of manufactured goods, according to N. Ramalingam, senior faculty at the Centre for Taxation Studies here.

Addressing a workshop organised by Keraltoday.com, Mr.Ramalingam said VAT would equip industrialists and resellers to become globally competitive. "Though prices may go up marginally during the transition period of three or four months, the benefits will trickle down later," he said.

"VAT is essentially the tax imposed on the difference between the sale price and purchase price of a product. In the current system, the tax on purchase of raw materials is factored into the cost, leading to a pyramid effect on pricing.

"Likewise, double taxation also has a cascading effect on the price fixation. In the VAT system, the input taxes paid on purchase of raw materials and products are set off, enabling both the manufacturer and the dealer to offer the product at a lower price," Mr. Ramalingam explained.

More transparency

He said the State Government was expected to incur a loss of Rs. 850 crores on account of input tax credits and opening stock set off. "The system is designed to ensure transparency and tax compliance," he added.

Answering questions from participants, Mr. Ramalingam said the VAT system would require traders and manufacturers to maintain monthly returns and consolidated annual statements to claim the benefits.

"The liability for damaged stocks will be passed on to the manufacturer. Dealers can also claim the entry tax on goods imported from other States. Export-oriented manufacturing units will enjoy zero rate of taxation, which enables them to claim refund of all input taxes."

Mr. Ramalingam said the opposition from trading community was largely due to misplaced apprehensions and ignorance of the merits of the system. "By maximising turnover and profit, VAT will help industry and traders to pass on the benefits to consumers," he said.

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