The Hindu Business Line : VAT issues

The state-level value-added tax (VAT) regime is scheduled to come into force from April 1, 2005. The industry was expecting unification of all taxes levied except excise duty.

Contrary to this, the Central Sales Tax (CST), additional excise duty, entry tax, octroi and the requirement of C-forms for inter-State trade and check-posts will continue and VAT will only replace local sales tax (ST).

Manufacturers of industrial and consumer goods will get rebate for the tax they pay. But they will continue to tax the consumer. In cases where traders sell their commodities without any tax added on, prices of these products will go up on account of VAT.

Further, consumers of almost all the commodities who buy other than from the first seller (manufacturers, distributors and wholesalers) within their State will be paying tax on the freight incurred by the subsequent sellers and on their gross profit. VAT will hit hard, maybe wipe out, small businesses and help the survival of wholesalers. Further, with VAT, the ultimate seller has to collect tax from the consumer in order to claim rebate for the tax paid by him.

Instead of introducing the VAT system the Centre could make the following changes in the existing sales tax structure.

Bring a single-point tax of 4 per cent on all commodities within the State. Levy 2 per cent sales tax on all consignment and stock transfers across States.

Abolish the C-form.

Increase the renewal fee for all those who have no tax liability because of their dealing only in second sales materials.

Concentrate only on manufacturers and first sellers within the State to prevent tax evasion.

These changes alone will bring in extra income for the government without causing displacing traders and consumers.

K.A. Sundararajan

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