NEW DELHI: At long last, five BJP-ruled States on Saturday switched over to the value-added tax (VAT) regime from the sales tax system.

Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh and Rajasthan have issued separate notifications, under which tax is to be imposed only on value addition to products.

With this, the VAT regime is implemented in 27 States. Tamil Nadu and Uttar Pradesh are yet to fall in line.

Under the new taxation regime, which has two major slab rates of four per cent and 12.5 per cent, small businesses with a turnover of up to Rs. 5 lakh are exempt from the levy. Besides, traders will be able to recover VAT on raw materials and intermediate goods.

In the beginning of 2005-06 when 22 States replaced the sales tax system, the five BJP-ruled States along with Tamil Nadu and Uttar Pradesh stayed out in view of protests against the new VAT regime by traders and in the absence of a road map for abolition of the four per cent Central Sales Tax (CST).

The CST issue is yet to be resolved. Earlier, as per the negotiations with the Centre, the CST was to be halved to two per cent from 2006-07 and totally phased out by fiscal 2007-08. However, for lack of consensus between the Centre and the States, the Empowered Committee of State Finance Ministers on VAT set up a working group to sort out the issue.

That the BJP States would jump on the VAT bandwagon from the new fiscal became clear when Rajasthan Chief Minister Vasundhara Raje announced during the State budget presentation on March 8 that VAT would be enforced from 2006-07, as the State was losing out on the incentives provided by the Centre.

Essentials exempted

In Jharkhand, the Government kept 62 items out of the purview of VAT, while high-speed diesel (HSD), aviation turbine fuel (ATF), liquor, molasses, narcotics and petrol have been placed in the 20 per cent tax bracket. In all, 140 products have been clubbed under four per cent VAT. However, essential commodities such as wheat flour, maida, suji, puja articles, equipment for the handicapped , fodder, meat, fish, eggs, betel leaf, lac, leaf plates, firewood, curd, lassi, butter, garlic, ginger and satu will enjoy exemption from the levy.

In Madhya Pradesh, 53 commodities, including sugar, foodgrains, pulses and wheat flour, have been exempted from VAT. Some of the other tax-free items are cloth, tobacco, gur, maida, suji and molasses, while tax has been reduced on domestic cooking gas (LPG), tea, medicines, fruit juice, paint and ice-cream.

The Gujarat Government has placed 216 commodities under the purview of VAT while exempting textiles, tobacco, sugar, zari and diamond from the tax for the present.

Printer friendly page  
Send this article to Friends by E-Mail