The Hindu Business Line : White paper on VAT by mid Jan

THE white paper prepared by the Empowered Committee of State Finance Ministers, carrying the basic framework of value-added tax to be implemented across the country from April 1, 2005, is expected to be released by mid-January 2005 among various sections of trade and industry for a national debate.

Participating in an interactive session on `VAT, tax policy and GDP growth', organised by the Indian Chamber of Commerce here on Friday, Dr Parthasarthi Shome, Economic Adviser to the Union Finance Minister, and permanent invitee to the meetings of the VAT empowered committee of State Finance Ministers, said industry need not fear on VAT laws, as these do contain any draconian provisions.

Pointing out that as many as 27 States, which had agreed on the model VAT Act, were now in the process of thrashing out a common formula, he said VAT was specifically meant for the organised segment among producers and dealers, and that most other State taxes would be merged into VAT.

Admitting that States with divergent laws had different interests, Dr Shome stressed on the need for a common set of parameters for VAT.

Citing VAT as the most direct among all indirect taxes, he said it was the least interventionist among all indirect taxes.

Admitting that there has to be some caution on the revenue impact of VAT, considering the self-assessment system being put in place instead of Inspector Raj, he said there has to be mutual trust between Government and industry, and for VAT to succeed, there has to be strict financial control.

He said a thorough information network among States would be developed within one year of implementation of VAT.

Such a network on a pilot basis was already being developed for the North Eastern region. While there would be no question of different rates, as there will only be two (common for all States), there will be flexibility on exempted items as per the choice of the respective States.

Each State can pick 10 items which it can exempt from VAT purview.

Recognising the Centre's efforts to eliminate large deficits through the process of revenue-led fiscal consolidation, Mr S.K. Bajoria, former President of ICC, it was necessary not to lose sight of the need for providing adequate impetus to the growth process.

He observed that the proposed reduction of corporate tax to 30 per cent did not seem adequate in a situation where all exemptions and incentives are withdrawn.

He suggested a tax rate of 20 per cent as more reasonable.

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