Financial Daily from THE HINDU group of publications
Thursday, Nov 25, 2004
Financial Daily from THE HINDU group of publications Thursday, Nov 25, 2004 |
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Industry & Economy
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Taxation World Bank for VAT introduction on floor rates K.R. Srivats
New Delhi , Nov. 24 THE World Bank has suggested that the value-added tax (VAT) regime to replace the existing sales tax system be introduced on the basis of floor rates rather than uniform rates. In a report titled `State Fiscal Reforms in India: Progress and Prospects,' released on Tuesday, the World Bank has said one of the issues that complicated VAT introduction in the year 2003 was harmonisation. It has pointed out that although the aim earlier was to agree between States on floor rates, this goal was later shifted to rate harmonisation. The World Bank has held that the strategy of rate harmonisation would promote simplicity in the tax regime but may not be worth the cost in terms of loss of state tax autonomy and tax revenue (at a time when the tax/GDP ratio needs to be increased). "Thus reversion to the earlier strategy of establishing floor rather than harmonised rates for VAT appears warranted," the report has said. It has held that the introduction of VAT should be on the basis of floor rather than uniform rates to avoid loss of revenue, preserve tax autonomy and minimise the need for compensation. The report has also suggested that individual states could be encouraged or at least allowed to graduate individually into VAT if a consensus cannot be established to guide the introduction of VAT.
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