The Hindu : Tamil Nadu / Chennai News : VAT delay will lead to capital flight: CII

Online edition of India's National Newspaper
Sunday, Jun 25, 2006

Tamil Nadu

Tamil Nadu - Chennai

VAT delay will lead to capital flight: CII

Special Correspondent

"Stiff sales and entry taxes blunt competitiveness"

CHENNAI: Tamil Nadu's key industrial sector such as auto components, leather, sugar and SME industries are unable to compete with the neighbouring States owing to stiff rates of sales and entry taxes, the Confederation of Indian Industry has said.

In a statement here, CII's Tamil Nadu chairman Sanjay Jayavarthanavelu said a "simple, predictable VAT regime with a moderate rate, would promote efficiency, competition and the growth of a common market. VAT implementation will significantly improve tax compliance and will also help to increase revenue ... for the State Government, which can be utilised for development projects."

Urging the Government to implement the VAT at the earliest, Mr. Jayavarathanavelu said: "Since the total effect of the VAT system will amount to rationalisation of the tax burden, it would bring down the price level, thus helping the common man and traders." Any delay in the implementation would affect the small and medium enterprises, which account for a major production output in the State, and would lead to the flight of capital and business to neighbouring States, he said.

He said the Centre was working out ways to phase out a Central Sales Tax running parallel to the VAT. It was crucial for all States to implement the VAT so that the Centre could merge the State-level VAT, Central excise and service taxes into a single Goods and Services Tax by 2010. Allaying fears in some quarters, he said the VAT boosted the revenue of States that implemented it; these States achieved a 13.8 per cent increase during 2005-06. Even the States, which adopted it from the current financial year, reported a significant increase in revenue in the first two months.

A Federation of Indian Chambers of Commerce and Industry (FICCI) spokesman said all the major industry and trade bodies had impressed on the State Government to implement the VAT at least from April 2007. For it to happen, a decision had to be taken now, so that the legal process could be completed in time.

With the increase in the exemption ceiling to Rs. 10 lakh, there was no need for small traders to oppose the VAT, as they would be outside its purview. Any further delay in switching over to the VAT would affect the flow of investments to Tamil Nadu, he cautioned.

The FICCI was planning to make a detailed presentation on the VAT and other industry issues to the new Government. The process of dialogue with the administration had already begun.

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