The Hindu Business Line : FICCI calls for removal of grey areas in VAT regime

THE Federation of Indian Chambers of Commerce and Industry (FICCI) has called for removal of grey areas in the proposed value-added tax (VAT) regime to improve its efficacy, ensure deterrence-free inter-State trade and commerce and avoid cascading cost-push impact of the levy.

In a representation to Dr Asim Dasgupta, Convener, Empowered Committee of State Finance Ministers, the chamber has listed out 10 areas of concern to industry and trade, which need to be immediately addressed to ensure a smooth transition to the VAT regime from April 1.

Noting that the White Paper leaves a lot of discretion to the States over the continuation of incentive schemes, FICCI has suggested alternative models — price reduction model and the remission model — which would meet the objectives of an improved tax structure and fulfilling assurances held out to the States.

It has also recommended that while units located in special economic zones and export-oriented units will be granted either exemption from payment of input tax or refund of the input tax paid within three months, it would have been desirable if the Empowered Committee had made the provision immediately applicable for availing of credit on inputs procured from other States through inter-State trade and stock transfer.

While VAT will end the multiplicity in taxation arising out of taxes on turnover, surcharge, additional charge, special additional tax etc., FICCI would welcome abolition of all local taxes including octroi and entry tax (instead of making it VATable) after the introduction of VAT.

"We also believe that entry tax if imposed in lieu of octroi should also be made VATable. Otherwise, such impositions would increase the cost of manufacturing significantly in certain areas as compared to others," the chamber stated.

The White Paper does not provide a definite timeframe on phasing out of central sales tax (CST).

It only proposes a review and decision in 2005-06. FICCI is strongly of the view that CST should be abolished to make India one common market or else there should be full set-off available like local sales tax.

It has also urged the committee to circulate the list items covered under the VAT system so that the industry and trade would know under which Clause they would fall.

The White Paper provides that under the VAT system, the existing incentive schemes may be continued in the manner deemed appropriate by the States after ensuring that the VAT chain is not effected.

FICCI felt that the price reduction model, or the remission model, could serve the purpose for all stakeholders. Under both these models, the objectives of moving to an improved tax structure as well as fulfilling past promises of the States would be met.

Further, the State legislation and rules should be uniform across all States and introduced simultaneously all over the country.

The integration of State Revenue Departments for exchanging information and data on input credits is the key area for smooth functioning of VAT.

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