The Hindu Business Line : States to raise VAT composition scheme limit to Rs 1 crore

STATE Governments have agreed to raise the limit of the optional composition scheme under the proposed value added tax (VAT) regime from the earlier agreed Rs 40 lakh to Rs 1 crore.

The main purpose of a composition scheme is to enable the small dealers in a State to pay tax without incurring a high compliance cost.

"Some of the States wanted the Rs 40 lakh limit to be raised. The Empowered Committee have in their last meeting agreed to raise the limit to Rs 1 crore, States now have the flexibility to keep the limit at either Rs 40 lakh or Rs 50 lakh or Rs 75 lakh as per their choice", Mr Ramesh Chandra, Secretary, Empowered Committee of State Finance Ministers on VAT, told Business Line on the sidelines of a meeting on VAT organised by the PHD Chamber of Commerce and Industry (PHDCCI) here.

Earlier in his address at the meeting, Mr Chandra said that the State Finance Ministers have decided that "for the time being they will ignore" the report of the Kelkar Task Force on implementation of the Fiscal Responsibility and Budget Management Act.

"Ministers feel that the Kelkar report is only diverting the attention of everybody from the main issue", Mr Ramesh Chandra said.

He also made it clear that States are only looking at implementation (from April 1,2005) of a VAT regime that would replace the sales tax and there was no move at present for a full-fledged national VAT.

Dr Kelkar, Chairman of the Task Force on implementation of FRBM, is likely to make a presentation before the Empowered Committee sometime next week. The Committee will meet here next week to consider, among other issues, the crucial issue of input tax credit on stock transfer between States.

Answering queries raised by industry representatives at the PHDCCI meeting, Mr Ramesh Chandra also said that there is no intention on part of the Empowered Committee to keep the three Additional Excise Duty (AED) items — textile, tobacco and sugar — out of the VAT regime.

"It has been decided to keep the VAT rate at 4 per cent. In the case of tobacco, the States have also been allowed to impose luxury tax. The overall rate on tobacco would be 20-25 per cent. There has been no sympathy on tobacco", he said.

On the issue of entry tax, Mr Chandra said that this tax would be vattable. But, on Octroi, he held that this impost would remain unless the States agree to remove them.

With all the State Governments agreeing to come up with their modified VAT laws by September end, the rules for implementation of these Acts are to be finalised by the cut-off date of November 30, 2004.