The Hindu Business Line : VAT: Bengal may alter composition scheme norms

THE much-awaited West Bengal VAT law amendments and final draft VAT Rules alongwith the schedules, likely to be put on the State Web site on Monday, may carry significant changes.

Making a presentation on VAT at an interactive session organised by the Indian Plastics Federation, jointly with All-India Flat Tape Manufacturers & Dealers Association and Calcutta Pen Manufacturers & Dealers Association here today, Mr Bhanu Prakash Agarwal, VAT and Service Tax expert, said some of the major changes could be with regard to composition scheme (for those with a turnover between Rs 10 lakh and Rs 50 lakh), works contract rate slabs and opening stock tax treatment.

Lamenting that announcement of the changes was already late, as hardly a week is left before VAT comes into effect, he said the VAT rate under the composition scheme was now being reduced to 0.25 per cent from the earlier 1 per cent.

In the case of works contracts, the built-in contracts turnover limit of Rs 50 lakh may be corrected, with no limit being proposed with a tax rate of 2 per cent. And with opening stock, a two-slab VAT rate may be introduced on the basis of a deemed purchase value.

Mr Agarwal pointed out that use of technology by the department may actually prove to be a disadvantage for the registered dealer, especially if he follows computerised accounting systems, for he would now be required (though not mandatory yet) to submit a CD along with the VAT returns.

He said the initial problems with regard to inter-State stock transfers and input tax credits under the new VAT regime would get corrected only after the inter-State information exchange system, contract for which has now been given to ICICI Infotech, is put in place.

According to him, this would also usher in the much-needed inter-State tax reform in the country.

Pointing out that all States have to become VAT compliant, if the system has to be made workable, he said VAT covered the entire economic chain.

Pointing out that States still would have unlimited power to levy sales tax as guaranteed by Article 246 of the Constitution (which still reigns supreme), he said the first real roadblock, and the key issue with big States not too keen on VAT, was the Central Sales Tax, which has to eventually go.

The spirit of Article 246 would very much remain in the VAT design, as clearly borne out by the fact that each of the 29 States and Union Territories would still have its own VAT Act, even though there were certain areas of commonality (22 points of convergence, according to the White Paper on VAT), under the spirit of "cooperative federalism".

Commenting on some of the negative fall-outs of VAT, he cautioned against huge VAT frauds emanating from collusion between the buyer and seller through false documents.

Describing the problem as real, as indicated by a survey in the UK recently, Mr Agarwal said Britain has listed sophisticated VAT frauds, running into huge sums of money, as one of the three major evils of modern society, the other two being terrorism and drug peddling.

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