• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Our Bureau

CHENNAI, Oct. 1

SWITCHING over to value-added tax is important to Tamil Nadu for growth and competitiveness, according to Dr Raja Chelliah, Chairman, Madras School of Economics.

For a State that is not rich in natural resources including water, efficiency should be the watchword to compete with resource-rich States, he said.

With the taxes focussed on the consumption-end and exemptions few, they are bound to be proportional to consumption, and in coordination with a moderately progressive income the system could be efficient.

When tax is broad-based revenue it is bound to be buoyant as cost reduction is related to increase in demand. Adoption of Value Added Tax (VAT) would mean full set-off on taxes paid on bought out inputs including capital goods, same rate of tax on second and subsequent sales. Registered dealers deduct tax paid on inputs and pay net amount to the Government and Central Sales Tax is phased out.

In the case of smaller traders, with turnover below a certain threshold, self-assessment should come in vogue. This does not represent a risk of loss to the departments concerned because 66 per cent of the revenue comes from 10 per cent of the dealers, on whom the focus should be more, Dr Chelliah, who is also the chairman of the Tax Reforms and Revenue Augmentation Commission set up by the Tamil Nadu Government, said. The smaller traders could come under a compounding system and this would also make the transition to VAT easier.

However, it is important that implementation of the VAT should be left to expert total solution providers. If done in a systematic and planned manner with the system totally computerised, the transition should not be a problem, he felt.

Dr Chelliah was addressing a conference on value added tax organised by the Madras Chamber of Commerce and Industry here today.

Mr Debendranath Sarangi, Commercial Taxes Commissioner, Tamil Nadu, felt that with the diverse nature of the constituent States in India, there were fears whether all the States would be able to introduce VAT. With the State Government expected to implement the system from April 2003, there were a number of issues that needed to be addressed.

For instance in States such as Bihar and Rajasthan as compared to Karnataka and Tamil Nadu, there were widely divergent views on tax administration and compliance. Land-locked States do not want imports to be taxed by States with port facilities, while the coastal State wants revenue for the service provided.

With the Central Sales Tax (CST) set to be phased out, the compensation for the loss of revenue is another issue. CST accounts for nearly 10 per cent of the Tamil Nadu annual commercial taxes revenue, he said.

The State Governments had been told that they would be permitted to levy tax on some services and on items that come under additional excise duties. This called for Constitutional amendments, and more information was needed on the services that are to be taxed by the State.

"The dealers will not welcome levy of tax on additional excise dutiable items. These are issues that are bound to consume time before a common view is obtained," he said.

Tamil Nadu has designed a VAT Bill which tackles a number of issues like VAT administration, zero rating of exports and zero rating of inter-state sales depending on the phase-out of CST, he said.

According to Mr K.J. Chandran, a Chennai-based advocate, discipline would be the key to the success of VAT. An enforcing authority is called for, with the State Governments implementing various taxes that are against the principles on which VAT is founded.

Earlier, the State Governments were expected to bring in uniform rate of taxation. But subsequently this was diluted to uniform floor rates and this too has not been fully implemented.

CST had been expected to be integrated with VAT but here again CST is expected to co-exist and subsequently phased out. But a time frame had not been given, he said. Entry tax was another levy that could wreck the concept of VAT, he said.

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
IICT initiative to produce synthetic aviation lube

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line