Financial Daily from THE HINDU group of publications
Thursday, Jan 24, 2002
Government - Taxation
VAT switchover to take one more year
NEW DELHI, Jan. 23
ONE of the "progressive reform measures" planned by the Centre and the States to usher in a value-added tax regime in States from April 1, 2002 has received a setback. The deadline for implementation has been pushed back by one year to April 1, 2003.
The silver lining, however, is that all the 28 States - sixteen non-special category and 12 special category - and Union Territories will simultaneously switch over from the existing sales tax system to a VAT regime on April 1, 2003.
An official announcement on the pushing back the time-table for implementation of the VAT regime was made by the Finance Minister, Mr Yashwant Sinha, and the Chairman of the Empowered Committee of Finance Minister, Dr Asim Dasgupta, at a joint press conference here today.
The official reasons cited for not being able to stick to the April 1, 2002 deadline included the inability of the Centre to introduce amendments to the Central Sales Tax Act in the Winter session due to the terrorist strike on Parliament and absence of legislative amendments to give States additional powers on taxation of Additional Excise Duty (AED) items.
The lack of consensus both on the sharing of services as well the formula for compensating States in case of any revenue losses due to VAT also influenced the decision of the empowered committee to postpone the deadline.
"The introduction of VAT during a recessionary phase would only add to more uncertainties. Trade and industry have also been expressing concerns on the impact of VAT, saying that it would result in a higher incidence of tax on commodities, which, in turn, would push up product prices. We will now have adequate time to address these concerns," Mr Sinha said.
He added that it took three to four years for some of the countries to introduce VAT legislation as preparatory work was a must.
The empowered committee ruled out a mid-year introduction (October 1, 2002) of VAT as it would create accounting problems.
Dr Dasgupta, on his part, maintained that all 16 States were ready with their draft Bills to move over to the VAT regime. Rather than lack of preparedness, it was the delay in the introduction of amendments facilitating the launch of VAT and objections raised by States on the tax on services and the revenue-sharing formula that forced the postponement.
An amendment to the CST Act is warranted to provide a set-off to manufacturers or dealers on inter-State sales. The Finance Ministry will target this Budget session for introduction of the legislative amendments. According to Mr Sinha, the issue of transfer of services and the compensation formula would be resolved at the "political level."
Although States have favoured bringing services under the Concurrent List, the Law Ministry has given the view that the Concurrent List is not meant for assigning powers of taxation. A separate legislation on the lines of the Central Sales Tax Act will be required.
States have also suggested clamping a ceiling on the rate of tax to be imposed in case services are to be brought under the Concurrent List. States have rejected the recommendation to transfer only 51 services. The Centre has been asked to review the issue.
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