Tamil Nadu   

"VAT will not harm small traders"

Staff Reporter

Traders with less than Rs 10 lakh turnover are exempted from taxation: officials

CHENNAI: The value added tax regime will not harm the small trader, the retail business or government revenues, according to Chief Secretary L.K. Tripathy.

At a press briefing here on Saturday, Mr. Tripathy and other senior government officials dispelled apprehensions and clarified various doubts about the VAT that would be in place from January 1.

Mr. Tripathy said the State has taken steps to ensure that the small trader would not be affected. Traders whose turnover was less than Rs. 10 lakh were exempted from taxation and those with a turnover below Rs. 50 lakh could opt for a compounded rate of just 0.5 per cent, he said.

Dismissing fears that such concessions would be withdrawn later, Home Secretary S. Malathi said these measures were not just a government order or executive decision that could be rescinded at any time. "This was passed in the Assembly. It is part of the Act... the legislature will have to be consulted before it can be changed. There is no need for apprehension on this front," she assured.

Contrary to worries about a tax rate hike, most goods would face an identical or lower rate under VAT, Mrs. Malathi said. Tamil Nadu has ensured that all goods now taxed at 4 per cent would continue to be taxed at the same rate even if they came under the Central Empowered Committee's list of goods to be taxed at 12.5 per cent, she said.

In fact, even those goods which came under a higher slab under VAT would face a lower effective rate when input tax credit and the abolition of surcharge and resale tax were taken into account. These benefits to traders would be passed on to consumers if there were sufficient awareness and a competitive environment, she said.

The self-assessment aspect of VAT would "empower the small traders" and protect them from harassment, according to Mr. Tripathy. "When a dealer files the monthly return, we just don't ask questions," said Mrs. Malathi.

Based on the experience of other States, which have clocked an average 26.2 per cent growth in tax collections post-VAT, it was safe to predict that the Tamil Nadu Government's revenues would also increase, said the Chief Secretary.

"Initially, there will be a loss," he admitted. However, this would be compensated by the Central Government's scheme to set off the loss on a progressive basis. Although Tamil Nadu was eligible for only two years of compensation, since it failed to join the VAT regime last year, Mr. Tripathy said the Chief Minister had written to the Prime Minister and the Finance Minister requesting that the State be granted that benefit for three years.

Incentives

VAT would increase revenues by providing incentives for local trade and encouraging tax compliance. Since tax invoices or bills must be produced to avail of the input tax credit advantage, "VAT has a built-in situation of tax-compliance," said Finance Secretary K. Gnanadesikan. "The scope for evasion is gone."

With input tax credit being available only for purchases made within the State, "the incentive would be for manufacturers to buy locally. So the expectation is that local trade will increase. There will be no incentive to do branch transfers," said Mrs. Malathi.

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