The Hindu Business Line : 21 States agree to shift to VAT regime from April 1

The Finance Minister, Mr P. Chidambaram, with the Finance Minister of West Bengal and Chairman of the Empowered Committee of Finance Ministers on VAT, Dr Asim Dasgupta, in the Capital on Thursday. - Kamal Narang

New Delhi , March 24

THE transition to the State-level value-added tax (VAT) is on, with 21 States today firmly committing themselves to march into the new tax regime from April 1.The five BJP-ruled States — Gujarat, Rajasthan, Madhya Pradesh, Jharkhand and Chattisgarh — along with Tamil Nadu, Uttar Pradesh and Uttaranchal have expressed their reluctance to come on board immediately though efforts are on to convince them to join the new system.

The commitment by the 21 States came at a special meeting here on Thursday of the Empowered Committee of State Finance Ministers, headed by the West Bengal Finance Minister, Dr Asim Dasgupta. The Union Finance Minister, Mr P. Chidambaram, also attended the meeting.

At a press briefing later, Dr Dasgupta said that the Empowered Committee has agreed to double the exemption limit for small traders to an annual turnover of Rs 10 lakh, from Rs 5 lakh prescribed earlier.

Moreover, the committee has decided to lower the tax incidence under the composition scheme for dealers with annual turnover of up to Rs 50 lakh. The scheme allows such traders to make a one-time annual turnover-linked payment in lieu of VAT.

"The payment in lieu of VAT can be lower than 1 per cent and even as low as 0.25 per cent of the gross annual turnover," Dr Dasgupta said.

He said that Central Sales Tax (CST) collected by the States would be phased out within two years, with the Centre providing compensation for the revenue loss. "The CST rate would be 4 per cent in 2005-06, which would go down to 2 per cent in 2006-07 and then to nil in 2007-08. CST phasing out is dependent on full compensation."

He said the Empowered Committee has decided to review the VAT rates at the end of the first quarter of 2005-06. "We will review the rate structure at the end of the first quarter of the coming financial year."

Under VAT, there would be two basic rates of 4 per cent and 12.5 per cent and a special rate of 1 per cent for items such as gold and ornaments. Besides, there would be a category of exempted goods.

Talks on with BJP: Dr Dasgupta said that he was holding talks with the BJP national leadership to make them change their mind. The BJP had announced last Saturday that States ruled by the party would not shift to VAT unless all States simultaneously agree to shift over.

"I have held discussions with the BJP President, Mr L.K. Advani, and former Finance Minister, Mr Yashwant Sinha, and requested them to review their decision and let all of us be together," Dr Dasgupta said. More discussions would take place with the BJP leadership before April 1, he said.

During the next few days, discussions would also be held with the UP Chief Minister, Mr Mulayam Singh Yadav, and the Tamil Nadu and Uttaranchal Governments, Dr Dasgupta said.

He said that adoption of VAT would make the States a more attractive investment destination. "VAT is significantly attractive for industry and trade. The tax burden would ultimately come down."

Responding to a query on the possibility of imposition of entry tax in lieu of octroi, Dr Dasgupta said that there was no bar on imposing such a levy even after the VAT regime comes into force.

Earlier, the Finance Minister, who was a special invitee to the meeting, told the media that he had urged the States not to backtrack on their commitments.

"I am confident that majority of States will implement VAT. Majority of them have committed to implementing VAT. I told the Empowered Committee that VAT is your law. VAT is your tax. You had said as late as March 7 that you will implement VAT from April 1. You have come out with a white paper on VAT," Mr Chidambaram said.

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