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States moot 3-slab VAT structure

Anil Sasi

New Delhi , July 16

STATES are set to do a rethink on the basic tax structure under the proposed value-added tax (VAT) regime. A meeting of the Empowered Committee of State Finance Ministers will take up on Saturday (July 17) a proposal to shift from the scheduled two-slab value added tax (VAT) rate structure to a three-slab structure.

Under the three-slab structure, the median VAT rate, which would encompass 80 per cent of the commodities, could be set at 8 per cent. In the two-slab system, the median fell at 12.5 per cent.

The industry prefers the three-slab system to a two-slab system since the tax incidence would be lower for a majority of the taxpayers. The other two tax rates proposed under the three-slab system are pegged at 4 per cent and 12 per cent.

Even as the basic rates (of 4,8 and 12 per cent) might be changed, the other three tax rates would be retained at the same levels as before. Thus, there would be a list of exempt items while commodities like gold and precious metals would attract a one per cent tax and other like auto fuel would be taxed at 20 per cent.

The Empowered Committee, at its meeting on Saturday, would also take up for discussion the issue of having uniform definitions across all states on procedural issues, so that there is clarity on these issues for trade and industry. Under this, the definition of capital goods, set-off etc. would be covered. All states are expected to shift to a VAT regime from April 1, 2005.

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