Blueprint proposes two basic VAT rates

The new VAT regime, expected to be in place across all states by April 1, 2005, will have two basic rates of 4 per cent and 12.5 per cent fo...

The new VAT regime, expected to be in place across all states by April 1, 2005, will have two basic rates of 4 per cent and 12.5 per cent for 530 items. There will also be a specific category of tax-exempted goods and a special VAT rate of 1 per cent for gold and silver ornaments and so on.

However, inspite of the mega plan to implement an IT system called TINXSYS to integrate all states for tracking down inter-state transactions, the concept of checkposts at state borders is likely to continue. According to a note circulated in the Empowered Committee on VAT, 8220;Most states have initiated steps for computerisation up to CTO Commissioner of Tax Office levels and also at checkposts.8221;

According to the blueprint, there will be at most 46 commodities in the list of exempt goods 8212; natural and unprocessed products in the unorganised sector, products legally barred from taxation, and products that have social implications.

Included in this category is a set of maximum of 10 commodities, flexibly chosen by individual states from a list of goods finalised by the Empowered Committee that have social importance for individual states and have no inter-state implications. The rest of the commodities in the list will be common for all states.

The plan also entails that under the 4 per cent VAT rate category, there will be be the largest number of goods 265 comprising of items of basic necessities such as medicines and drugs, all agricultural and industrial inputs, capital goods and declared goods. The remaining commodities, common for all the states, will fall under the general VAT rate of 12.5 per cent.

The penal provisions in the VAT Bills will not be more stringent than in the existing Sales Tax Act, according to the plan. And, in general, all goods will be covered under VAT and will get the benefit of input tax credit. The few goods which will be outside VAT 8212; liquor, lottery tickets, petrol, and other fuels 8212; will continue to be taxed under the Sales Tax Act and with uniform floor rates decided by the Empowered Committee.

In terms of phasing out other taxes under the VAT regime, the note has some ambiguity. It states that while other existing taxes like turnover tax, surcharge, additional surcharge and special additional tax will be abolished, if states have already introduced entry tax and intend to continue with this tax, then they should be made vatable.

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However, this will not apply to entry tax that may be levied in lieu of Octroi.

WHAT8217;S IN STORE?

	nbsp;	8226; Two basic VAT rates of 4 and 12.5 for 530 items. 8226; Specific category of tax-exempted goods and a special VAT rate of 1 for gold and silver ornaments etc. Maximum of 46 commodities in exempt list, comprising natural and unprocessed products in unorganised sector, items legally barred from taxation and items with social implications. 8226; Despite an IT system called TINXSYS to integrate all inter-state transactions, checkposts likely to continue. 8226; Penal provisions in the VAT Bill will not be more stringent than in the existing Sales Tax Act. 8226; Few goods outside VAT, ie liquor, lottery tickets, petrol, diesel, aviation turbine fuel and other motor spirit, will continue to be taxed under the Sales Tax Act. Uniform floor rates to be decided by the Empowered Committee. 8226; Octroi to continue in the present form.	nbsp;