CHENNAI: The debate over introduction of value-added tax (VAT) in Tamil Nadu took an interesting turn on Monday with a leading industry body, while reiterating its appeal for the new system, suggesting that small traders could be kept out of the net initially.

Urging the State to adopt "innovative approaches for a smooth introduction of VAT," a study by the Confederation of Indian Industry (CII) said inclusion of traders in the system could be done in phases. This would provide time to small traders to improve their book keeping. The State Government, it said, could include larger traders in the first year and gradually lower the turnover threshold for inclusion into VAT and bring in more traders into the regime.

It also called for a total exemption or introduction of lower tax rate of 4 per cent on certain items to avoid an inflationary impact on the local economy.

The loss in revenue, on account of such exemption or lower rates would be offset by the gains due to better tax compliance and a "widened tax net."

Details of the `Imperatives for implementation of VAT in Tamil Nadu' study were released a day after the Commercial Taxes Minister indicated the likelihood of an announcement to introduce the new system in the State Budget on Saturday. Coinciding with his statement, on Sunday, a resolution was passed by the Tamil Nadu Vanigar Sangankalin Peravai opposing any move from the general sales tax system (GST).

On the apprehension about price increase, the study said the VAT proposed for Tamil Nadu would ensure against an escalation. As against the existing eight rates under the GST, there would be only three tax rates - one, four and 12.5 per cent.

Around 46 commodities of local importance, including rice, were to be totally exempted and a lower rate of four per cent would be applicable on over 88 commodities.

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