KOCHI: Uniformity in tax structure has been one of the key motivating factors behind the implementation of the VAT system. While the objective is yet to be attained, several problems continue to plague its implementation. Industrialists and traders have raised a host of grievances pertaining to the system.

There are several anomalies in the system, points out Xavier Thomas Kondody, president of the Kerala State Small Industries Association. For instance, timber is listed under 12.5 per cent VAT in Kerala. Simultaneously, it attracts entry tax. The item is listed in the 4 per cent VAT in Delhi. In Wood industry, which is an important sector in Kerala, the situation calls for a change, he says. A harmonised system of nomenclature (HSN) has been adopted for many items, but more than a dozen items have not been allotted HSN codes. These include transformers, DC power supply unit, electronic timers and the digital display system.

The distributors are experiencing serious difficulties to carry forward their business because of the harassment meted out by officials, alleges a trader belonging to the Kerala State Chamber of Commerce and Industry. There are reported instances in which penalty has been imposed for not showing the registration details of the purchaser even though the stock in the transporting vehicles is in order as per bills.

The authorities, who grant registration under the KVAT Act, demand huge amounts towards security from dealers for granting registration, which often drives genuine dealers with limited resources to abandon getting registration under the KVAT Act, according to Balagopala B. Pai, president of the Indian Chamber of Commerce & Industry.

Under the KVAT Act, the assessment is to be completed monthly and there is no justification for the unreasonable demand for huge amounts as security. In neighbouring States such as Karnataka and Andhra Pradesh, the security demanded for grant of registration is in the range of Rs.10,000 and Rs.25,000 while in Kerala, the same is in lakhs, he points out.

VAT is to be put into practice in a totally computerised environment, but many traders are yet to switch on to a computerised operating system, observes a trader.

Ultimately, any kind of tax is paid by the people and hence there is no point in penalising the trader over VAT issues which are yet to attain a concrete shape, he says. He also alleges that even the fundamental principles to be observed in the collection of taxes are being violated. There are instances in which officials examine wares as part of physical verification to assess tax, in front of the customers. This affects the reputation of the firm, he points out.

A top official of the Taxes Department says that a change in mindset is required on the part of the tax-payer for a changeover to the VAT system. Several provisions about VAT are passing through a crystallisation stage. Lack of clarity at the pre-implementation stage had given rise to some problems, according to him.

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