The Hindu Business Line : Sales tax sops: Ministry not keen to encourage industry demands

It is of the view that the industry ought not to be arguing for the continuation of sales tax incentives under the State-level value-added tax (VAT) system.

"You are proposing an internally inconsistent set of proposals. It is not feasible to keep on giving incentives and at the same time, lower the tax rates," Mr Parthasarathy Shome, Advisor to the Union Finance Minister, said at an international tax conference.

Mr Shome said that pre-budget representations from the industry had started to pour into the Finance Ministry and none of the representations that he had read so far talked of doing away with incentives.

"Invariably, we don't hear the comment that these incentives are terrible, we don't want them and we want you to reduce the tax rates. What we always hear is that this incentive in this form is better and please continue with incentives. I don't think your comments on incentives come from a solid stream of thought," Mr Shome said.

Prior to State-level VAT introduction, States were offering sales tax incentives (basically exemption for specified number of years) to attract industry and locate their units within their respective boundaries.

After VAT introduction on April 1 this year, some of the States have moved to what is known as a deferment system. Under this system, the industry is required to collect VAT along with their sales, but pay it to the State exchequer only after a specified number of years. There are, however, States such as Maharashtra and Karnataka that have opted to continue with the exemption scheme.

On the issue of the elimination of Central sales tax (CST), Mr Shome, who is a permanent invitee to the VAT panel, said that CST, "is not going to go away without taking into account the revenue cost and where this Rs 15,000 crore is going to come from.

"On a daily basis, while we want to simplify the life for the taxpayer, we have to see where this revenue is going to be substituted from in a non-distortionary manner so that the tax-GDP ratio of both the Centre and the States does not fall given the Fiscal Responsibility and Budget Management requirements. Within this macro-economic framework, we have to work on CST, service tax and other areas," he said.

On the issue of variation in rules and procedures adopted by various States under the VAT regime, Mr Shome also made it clear that Centre cannot impose that all procedures should be the same.

"Please remember that each State has its own requirement. Each State has a different view on the monitoring requirement of its taxpayers. Rules and procedures will have some variations but there should be threshold of similarity with which the entire system can work within a common framework," he said.

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