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Saturday, Mar 01, 2003

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Opinion - Taxation

He bites the VAT bullet

S. Sridharan

THE Finance Minister has set at rest the speculation on the implementation of VAT.State-level VAT would be on from April 1, 2003.

CST amendments: In a gradual move towards a fully destination based VAT, amendment to Section 8 of the CST Act has been proposed in the CST Act to reduce the rate of tax to 2 per cent from the existing 4 per cent. Revenue loss to States: Besides the fresh commitment on compensation of CST loss, the Finance Minister has reiterated the commitment of the Central Government to compensate 100 per cent of the loss in the first year, 75 per cent in the second and 50 per cent in the third year of the introduction of VAT; this loss being computed on the basis of an agreed formula.

AED goods: Textiles, tobacco and sugar, commonly known as AED goods will now be subject to State VAT in addition to the levy of tax under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The rate of tax to be levied by the States shall not exceed 4 per cent. If the rate of tax levied by the State exceeds 4 per cent, it may lose the share of revenue under the AED Act.

This move, to be effective from a date to be notified, ostensibly is to help the States augment revenue and to integrate these goods in the VAT chain.

The dual levy of AED and VAT on textiles, tobacco and sugar means `value-added troubles' to these industries.

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