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Harish Damodaran
K.R. Srivats

NEW DELHI, April 2

IN yet another indication of the States' reluctance to antagonise entrenched trade and industry interests in the implementation of the Value Added Tax (VAT) regime, the Maharashtra Government has decided not to levy VAT/sales tax on textile and sugar.

This is even as the Finance Minister, Mr Jaswant Singh, in his 2003-04 Budget, has proposed to allow State Governments to impose VAT/sales tax on textiles, sugar and tobacco products at a rate not exceeding four per cent.

Currently, States do not charge any sales tax on these three products. Instead, it is the Centre that levies additional duties of excise `in lieu of sales tax' on them. The States are entitled to receive an additional 1.5 per cent share in revenues from Central taxes and duties in return for not taxing these `goods of special importance'.

The Centre now proposes to amend the Additional Duties of Excise (Goods of Special Importance) Act, 1957 empowering States to levy VAT/sales tax on sugar, textiles and tobacco products, even while not denying them their existing additional 1.5 per cent share in central taxes. The move to permit States to impose sales tax, even as the Centre will continue to levy AED, is aimed at compensating States for revenue losses, if any, arising from implementation of VAT and also to integrate the three products in the VAT chain.

The Maharashtra Government, however, has decided not to impose VAT on textile products and sugar, even in the event of the AED Act being amended for this purpose. "These are sensitive products for the State's economy. And given the crisis being encountered by these two vital industries, we cannot afford to increase the tax burden on them," State Government officials said.

Maharashtra currently accounts for over 35 per cent of the country's sugar. Sugar now attracts a total excise incidence of Rs 85 per quintal, inclusive of a Rs 34 basic excise, a Rs 37 AED and a Rs 14 Sugar Development Fund (SDF) cess. If the States impose a sales tax of four per cent on top of this, it would imply an additional Rs 48-50 per quintal burden on the industry.

While welcoming Maharashtra's initiative, textile industry players, however, feel that it would have no real meaning if other States do not follow suit. "The main problem is that there is a lot of uncertainties in the proposed VAT regime. The Maharashtra decision comes a day before the VAT was supposed to be implemented in all the States. No time is being given for the industry to prepare for the VAT regime if legislative changes are being made till the last minute," the Chairman of the FICCI Textile Task Force, Mr O.P.Lohia said.

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