SHARING A POINT: Supreme Court Judge A.R. Lakshmanan (left), with MCCI president V. Balaraman, at a workshop on indirect tax laws in Chennai on Friday. — Photo: Vino John

CHENNAI: If all the components of value-added tax (VAT) are taken together, the total effect of the system will amount to rationalisation of the tax burden and could bring down the price level, according to Supreme Court Judge AR. Lakshmanan.

Besides putting to an end the unhealthy tax rate war and trade diversion among the States, VAT would significantly bring in simplicity and transparency in the tax structure. In turn, it would improve the tax compliance and lead to revenue growth, he said inaugurating a workshop on indirect laws here on Friday. Madras Chamber of Commerce and Industry is organising the two-day all-India workshop.

While 21 States switched over to VAT from April 2005 and five Bharatiya Janata Party-ruled States joined them this April, Tamil Nadu remains "one notable absentee in the VAT system of taxation," he said.

Noting that the misgivings and apprehensions of dealers about the system would disappear once VAT is introduced and they get accustomed to it, Dr. Lakshmanan said "ultimately the object should be to integrate and have one law on goods and services." VAT, he said, would bring about transparency in business. "It also brings about an increase in tax collection without necessarily resulting in increase in prices." The increase in revenue was due to greater transparency in business because dealers were eligible for input tax credit on their purchases. More and more purchasers/manufacturers now demand a tax invoice from the sellers to avail themselves of the input tax credit.

However, "it is also regrettable to note that manufacturers have not passed on the benefits of the input tax credit to the ultimate customers as VAT has not shown any reduction in prices in the last one year," according to Dr. Lakshmanan.

CST abolition

On abolition of Central Sales Tax, he said the State from where the inter-State movement commences stands to lose. In particular, industrialised States such as Tamil Nadu, Maharashtra, Gujarat, Andhra Pradesh and Karnataka stand to lose.

The Chamber leaders, including its president V. Balaraman and member-general committee Arun Bewoor, underscored the need for greater harmony with regard to taxation across the country.

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