The Hindu Business Line : Industry continues to hope on switching over to VAT

INDUSTRY continues to nurse hopes of switching over to value-added tax (VAT) system on April 1 while expressing concern over the uncertainty prevailing just days ahead of the deadline.

At an interactive workshop, "VAT's Happening," here on Monday, Mr K. Sridharan, Chairman, Economic Affairs & Taxation Sub-Committee of the Confederation of Indian Industry, said that industries continue to nurse hope because "dramatic changes can take place overnight in this country."

That the BJP-led State Governments are having second thoughts on implementing VAT is a major dampener for the industry.

Tamil Nadu too has voiced doubts on this score causing concern for the establishments here, he said.

It is imperative that all State Governments implement VAT uniformly and simultaneously. Particularly in the South where diversion of trade to neighbouring States is easy, any delay on Tamil Nadu's part will be a setback. Andhra Pradesh, Karnataka and Kerala are ready to implement VAT on schedule, he said.

Mr Sachin Menon of Ernst & Young India Pvt Ltd regretted that the proposed taxation legislation is being used as a political ploy. If India is to become a major economic power as some surveys portend, then it should at least move in the right direction and set the house in order.

The current sales tax regime is unruly with different State Governments adopting different procedures and regulations. VAT is aimed at uniformity, which would be in tune with the process of integrating with international trade systems.

The present tax system was loaded against the manufacturing sector. This sector contributes to 25 per cent of GDP but coughs up 60-70 per cent of the tax collection. But the services sector, which contributes to more than 50 per cent of GDP, pays a fraction of the tax. Unless the tax laws are fine tuned, survival would be under a question for industries, Mr Menon said.

There is no fixed rule that tax revenues would drop with introduction of VAT. In some cases, taxes would drop and in others increase.

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