The Hindu : Andhra Pradesh News : Traders take advantage of loopholes in VAT

Online edition of India's National Newspaper
Thursday, May 05, 2005

Andhra Pradesh

Andhra Pradesh

Traders take advantage of loopholes in VAT

N. Rahul

In spite of reduced tax they continue to sell commodities at MRP fixed earlier

HYDERABAD: There are at least 20 commodities on which traders are making profits illegally, thanks to loopholes in Value Added Tax (VAT) law in the State.

The tax on these 20-plus commodities has been reduced but the traders continue to sell them at the maximum retail price (MRP) fixed earlier or even below.

As a result, they pocket the difference in tax as well as the input tax credit in the new regime.

An added bonus is the protection from legal action as the consumer fora can step in only if the prices are above the MRP.

The commodities on which tax has been reduced are: toothpastes, cosmetics, shaving products and shampoo (20 to 12.5 %), cement (16 to 12.5%), biscuits and chocolates (16 to 12.5%), drugs and medicines (10 to 4%), paints (15 to 12.5%), LPG (16 to 12.5%), kerosene (8 to 4%), paper (8 to 4%), all kinds of batteries (16 to 12.5%), lubricants and other petroleum products (other than petrol and diesel) (16 to 12.5%), refrigerators and air-conditioners (16 to 12.5%), bitumen (12 to 4%), plywood, particle boards, laminated board (15 to 12.5%), transmission towers (12 to 4%), sewing machines (8 to 4 %), safety matches (8 to 4%), veterinary medicines (10 to 4%), poultry feed supplement (8 to 4%), unbranded bread (4% to exempt) and firewood and charcoal (4% to exempt).

Officials helpless

Commercial Tax officials are helpless as they feel that VAT was introduced without changing the existing rules. Besides, major producers like Hindustan Lever have not revised the price structure of their commodities like toothpastes and cosmetics, as they are marketing products on all-India basis.

They do not differentiate between VAT and non-VAT States as a result of which the prices have remained uniform.

If the price cushioning by traders is one area bothering Commercial Tax officials, the traders are in a dilemma whether to opt for VAT or Turnover Tax (TOT) registration.

Traders with a turnover above Rs. 40 lakhs per annum have no option but to opt for VAT, but those with a less turnover are faced with a piquant situation.

While VAT dealers pay a tax of four and 12.5 per cent depending on the slabs, the TOT dealers pay at a flat rate of one per cent on all commodities but are not entitled to input tax credit.

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