The Hindu Business Line : `States may have to wait till April 2006 to levy service tax'

Setting to rest all doubts about the implementation of a value added tax (VAT) regime from April 1, 2005, Mr Ramesh Chandra, Member Secretary, Empowered Committee on State Finance Ministers on VAT, said transferring the power of levying tax on services to States is not likely to happen before April 2006.

In fact, the Union Finance Minister, Mr P. Chidambaram, is likely to hold a meeting at the end of this month, where he will be spelling out a road map on the powers of the Centre that are likely to be transferred to the States. Currently, the Constitutional provisions do not empower States to levy service tax. The first reform that the Government is looking at is replacing sales tax by VAT. Addressing the business session on VAT in the conference on `Unleashing India's True Potential' organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) on Saturday, he said, "There were many ifs and buts on this earlier and uncertainty about the exact time of the implementation of VAT. But now, I am glad to say VAT is coming and it will come by April 2005."

He, however, cautioned that there can be many imperfections in the VAT system in the initial stages, but that is bound to happen while moving on to complex legislative reforms. Talking about the unified tax on goods and services, he said that the Empowered Committee is of the view that the time is not ripe enough for an integrated tax system for goods and services.

"The Empowered Committee considered the matter, the Union Government agrees with this approach that we are not yet ready for an integrated tax for goods and services in the country. It may take five years, it may take six years, but I can certainly say that it is not going to come in the next three years," he emphasised.

Mr Chandra said that the additional excise duty (AED) items are to be kept out of the VAT regime for the time being for the simple reason that we are not extending the net of VAT too much. AED, which is imposed by the States, covers millions of small retailers and right now due to administrative reasons the Government is not in a position to extend this in the net of VAT, he said.

On the central sales tax (CST), he said that the Empowered Committee is of the view that the time has not come to do anything on the sales tax front. CST will continue from April 1, 2005. The position would be reviewed on October 2005, said Mr Chandra.