K. R. Srivats

New Delhi, April 26

THE Empowered Committee of State Finance Ministers on Value Added Tax (VAT) has expressed disappointment over the trade response to the implementation of VAT.

"I am slightly disappointed with trade over its response to VAT implementation. Trade is being stubborn. They do not want to understand the VAT system," Mr Ramesh Chandra, Member-Secretary of the Empowered Committee, said.

He was addressing a seminar on VAT organised by the Northern India Regional Council of the Institute of Chartered Accountants of India here on Sunday. Mr Chandra said that the VAT design is not inferior to the earlier sales tax system. "It is simpler and would not result in increase in prices, unless the middle man plays mischief."

Mr Chandra, however, admitted that there are ground level difficulties. "We do understand that there are some implementation issues. This would be sorted out. The job of the empowered committee is not over with the introduction of VAT alone," he said.

Stating that the Union Government is keen to ensure the successful implementation of the new tax system, Mr Chandra highlighted that the Centre had already promised that it would compensate the States for losses that may arise from the introduction of VAT.

"I have been assured by the highest functionaries of the Finance Ministry in my meeting with them on Saturday that the Centre was ready, if need be, to cough up Rs 6,000 crore or even Rs 7,000 crore towards compensation," Mr Chandra said.

He pointed out that the Centre would not just go by the word of the State Governments on the issue of losses. "The Accountant General of the concerned State would have to certify the loss, if any, and this has to be subsequently audited by the Comptroller and Auditor General of India," he said.

The Centre has provided a sum of Rs 5,000 crore towards compensation to States on account of VAT implementation for 2005-06. Mr Chandra also made it clear that some degree of audit (above a specified limit) would have to be undertaken by VAT administrators on the books of accounts of traders.

Further, he also held that VAT should not be blamed for every price increase in the economy. "If steel prices have gone up, then immediately the finger is pointed at VAT. You should also take into account the increase in excise duty on steel to 16 per cent and its impact on prices," he said.

(This article was published in the Business Line print edition dated April 27, 2005)
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