The Hindu Business Line : KSSIA sees flaws in new VAT system

THE Kerala State Small Industries Association (KSSIA) has pointed out several defects in the new value-added tax (VAT) system going to be implemented in the State.

The association President, Mr Xavier Thomas Kondody said in a statement that one such defect was the invoicing system and subtractive methods of VAT calculation that would result in pyramiding effect of tax. According to the association, the other defects are VAT at source collection method will be a difficult task; end product pricing at any stage is tedious and involves lots of work for the small entrepreneur or even an expert cost accountant.

Discounting claims that the VAT regime would bring down prices, Mr Kondody said the inferences in this regard were only imaginary and not based on actual studies or appraisals. He pointed out that most of the States have not completed several essential requirements such as processing, framing, and enough data collections for implementing a taxation system like VAT.

During the initial period of VAT, he said it is better to exempt more small traders and manufacturers also under a bigger threshold limit to ensure administrative efficiency. Since an average 40 per cent of VAT will have to be refunded, manufacturers and exporters will be at a great disadvantage for claiming refund and timely receipt from fund-starved State governments.

The White Paper released by the Government on the State-level VAT did not have clear cut policy on exempting food, especially cheaper foods, which is important to low-income house hold budgets. The paper is also silent on works contract to job work system.

Regarding penalty computation and compounding penal interest rates, the association said that Kerala VAT is not compatible to many other States VAT laws. Other penal provisions are also need a re-look and should be uniform throughout the country

The association has also pointed out that the relationship between the Centre and the State could be strained under the current political environment in the country. Since bureaucrats would man the VAT Tribunals, there may be biased decisions in several cases.

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