R.Y. Narayanan

Coimbatore, March 15

THE Erode District Chamber of Commerce and Industry (EDCCI) has suggested the constitution of a committee under the leadership of the Tamil Nadu Finance Minister, to hold wide-ranging discussions with trade and industry in the State to arrive at a consensus on the implementation of VAT.

Once the details of the scheme are fine-tuned, the business community should be taken into confidence at least six months before the rules come into force.

In a representation to the Tamil Nadu Finance Minister, Mr C. Ponnaiyan, the EDCCI Secretary, Mr V.P. Thangamuthu, said that it would not be proper for the Centre to appropriate to itself the powers to prepare a list of exempted commodities - from which the States could select commodities for exemption from VAT - due to specific socio-economic reasons applicable to the States.

While the concept of VAT was initially promoted as a `Federal VAT', it has now come down to `State VAT', which is against the philosophy of uniform tax.

Mr Thangamuthu suggested that as recommended by the Dr Raja C. Chelliah committee, tax should be in the 0-8 per cent range, except luxury goods, which could be attract a revenue-neutral tax of 12.5 per cent.

He said that though the Centre had announced the phasing out of Central Sales Tax (CST), the fact that the Union Budget did not specify any time limit for its abolition and had not permitted setting it off against the sales tax levied by the states was contrary to the spirit of VAT.

He wanted the Central Government to come clean on how it proposes to compensate the loss due to the abolition of CST and urged that CST be withdrawn.

"It would be ideal if VAT were restricted to factory/production-level and not charged till retail sales level. This would prevent the levy of tax at multiple points."

Mr Thangamuthu also said that provision should be made for adjusting tax paid on capital goods immediately instead of over a 36-month period.

The stipulation that some capital goods would not qualify for tax exemption would only lead to confusion, he said, and urged that the facility of tax set off be extended to all capital goods. Exporters should be given full tax rebate for the tax paid on raw materials.

He also suggested the formation of a committee under the leadership of the Finance Minister with representatives from trade and industry and the sales tax department to discuss the issue and evolve an acceptable formula.

"Once a consensus on VAT is reached, the business community should be informed of the changes in rules at least six months before they are implemented."

(This article was published in the Business Line print edition dated March 16, 2005)
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