The Hindu Business Line : `VAT is the key for economic growth'

"States lose over 50 pc of their tax collection due to corruption. VAT would can enhance value for State governments and release them from various debt traps," Dr Ramesh said.

(From right) Mr C. Vidyasagar Rao, Union Minister of State for Commerce and Industry, Mr N. Kumar, Chairman, CII National Council on Logistics, Dr Ramesh Chandra, Secretary, Empowered Committee on VAT, Ministry of Finance, and Mr B. Sridhar, Chairman, Working Committee on Ports, CII (Southern Region), at the inauguration of Logistics 2003 in Chennai on Wednesday. — Bijoy Gosh

Chennai , Oct. 8

THE implementation of Value Added Tax (VAT) cannot wait any longer. VAT has to come for an overall improvement in tax reforms in the country and is linked to India's economic growth. For sectors such as telecom, roads and power sectors, VAT is an important area, said Dr Ramesh Chandra, Secretary, Empowered Committee on VAT, Union Finance Ministry.

In his special address here today at the inaugural of Logistics 2003, a national conference on logistics and supply chain management organised by the Confederation of Indian Industry, said implementation of VAT should have been done in April 2001. But, its implementation got postponed thrice and may be enforced by April 2004. "We have been struggling with the issue for the last three years," he said.

According to him, the State tax (sales tax) collection is a major harassment to Indian trade and is one of the main sources for corruption. "States lose over 50 per cent of their tax collection due to corruption. Introduction of VAT would not only enhance value for State governments but also release them from various debt traps," he said.

While the industry is by and large in favour of implementing VAT, the trade including exporters is averse to such a tax system. The exporters argue that they do not pay any tax at the moment, and would be paying if VAT were implemented. "If the trade is not in favour of VAT, it is an indicator of failure in our system," he said. Over 100 countries including US, Brazil and Canada have implemented VAT either fully or partially. To begin with, India can also adopt VAT partially. A uniform tax reform would attract a lot of investors and help hassle-free goods movement within the country.

On the Central Sales Tax (CST), Dr Chandra said, it is "a big irritant and problem for us". The annual revenue from CST is about Rs 20,000 crore to State governments, who feel they would lose this amount if VAT is implemented. "The Central government has agreed to compensate the loss to the state governments," he said.

Mr C. Vidyasaagar Rao, Union Minister of State for Commerce and Industry, said there is a need to learn from the international experiences in logistics and SCM as many countries have managed to increase their competitiveness over the years. The ports management in Singapore is one of the examples. Similarly, China and many of the East Asian countries have managed to compete aggressively in international markets and have significant share in the world trade mainly because they have better logistics.

At present, the India's share of the world trade was about 0.8 per cent and to increase this to 1 per cent and achieve targeted 12 per cent export growth rate, Indian manufacturing need to adopt all possible cost cutting practices. Commodity prices in general are declining globally and cost cutting would be a key to success in international markets, he said.

India should capitalise on its strong IT base and should revolutionise e-enabled logistics and SCM. The productivity level in the US improved significantly in the second half of 1990s mainly due to e-enabled management practices, he said.

Mr N. Kumar, Chairman, CII National Council on Logistics, in his opening remarks said after two years of gloom, the country's economy is buoyant. Manufacturing continues to shine and is doing well, and Indian companies are becoming globally competitive. "We see a booming picture in future. However, we need better infrastructure, and early implementation of VAT is important. India needs reforms, more reforms," he said.

Later, addressing a press conference, Dr Chandra emphasised that VAT would not result in any increase in prices of goods. He said that such an impression was being created by "vested interests".

However, he agreed that because some links in the value chain, that are now evading tax, would come into the tax net, and because of that there could be an increase in prices. But he said that such an increase would be "legitimate".

"If you had to pay sales tax while buying a product, which you were able to evade earlier, would that be price increase," he asked.

Dr Chandra said that the Karnataka Government had done a study on the impact of VAT on the prices of some 80 commodities, and found that there would be no increase in the prices.

He said that he expected that the States would get richer after introduction of VAT, because (a) more transactions would come into the tax net and (b) there would be tax revenue from services tax.

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