The Hindu Business Line : Cracks in VAT system

WITH ONLY DAYS to go for the April 1 deadline, it is strange that the Chief Ministers of the BJP-ruled States should decide against implementing a value-added system of sales tax (VAT). They base their opposition on the ground that there is as yet no clear roadmap from the Centre for phasing out the Central Sales Tax (CST), which governs the taxation of inter-State sales and, further, that Tamil Nadu and Uttar Pradesh are going to stay out of the VAT system. While Tamil Nadu's decision to stay out for now may have been unexpected, that of Uttar Pradesh was known all along. Yet the committee of State finance ministers, of which the BJP-ruled States were a part, had agreed on the April 1 deadline. The Committee had said the above deadline was a firm one, no matter that some State might choose to opt out later. Having consented to the arrangement then, it does not seem right for these States to now cite the example of Tamil Nadu and Uttar Pradesh. Even the question of phasing out CST was examined by the Empowered Committee of State-level Finance Ministers. Questions were raised then about the revenue loss to States originating from inter-State commerce besides concerns about possible revenue leakage arising from intra-State sales being masked as inter-State transactions. Whether or not these concerns were valid, the point is that the issue itself was never seen as a stumbling block to VAT implementation. These are precisely the objections that are sought to be raised as a barrier to a system of value added sales taxation in the country.

But the BJP decision should surprise no one. It is in the nature of competitive party politics that the party holding the reins of power at the State sees a different party that happens to rule at the Centre as its adversary, and vice-versa. By this yardstick, the BJP-ruled States perhaps believe they ought not to make any easier the Centre's task of ushering in VAT by April 1 this year. There is always the prospect of the party at the Centre taking credit for beneficial outcomes from its successful implementation. More so when it has demonstrated its stake in the issue by promising the States to make good 100 per cent of the revenue loss in the first year and a reduced percentage in the subsequent two years of implementation.

The BJP does not even have the luxury of claiming for itself a pioneer status in this regard as the Narasimha Rao-led Congress Government had sown the seeds for such a tax measure back in 1995. The merchant community, which is at the core of the BJP support base, has added its own imperative to the party's new-found opposition to VAT. If there is a lesson in all this it is this: However much one may claim that there is now a broad political consensus on economic reforms, the fact is that party politics does weigh, and heavily, even on matters purely economic.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Reverse mortgage, forward security

Cracks in VAT system

Bad beginning

The economics of tsunami relief

Significance of FRBM Act

Steel price rise

`Drop boxes' in banks