Five BJP states join VAT mainstream

Five BJP-ruled states today embraced Value Added Tax, replacing the Sales Tax system, as was done by 22 other Indian states last year.

Five BJP-ruled states today embraced Value Added Tax, replacing the Sales Tax system, as was done by 22 other Indian states last year. The states of Tamil Nadu and Uttar Pradesh are however still holding out against VAT.

The five BJP-ruled states of Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh and Rajasthan issued separate notifications to introduce VAT system, under which tax is imposed only on value-addition to products. Traders would be able to recover VAT on raw materials and intermediate goods.

Small businesses with a turnover of up to Rs 5 lakh are exempt from the new tax, which has two main slabs of four per cent and 12.5 per cent.

The five BJP-ruled states, along with Tamil Nadu and UP had earlier refused to implement the new tax citing protests by the traders and absence of a clear-cut roadmap for abolition of Central Sales Tax.

The CST was earlier scheduled to be reduced to two per cent from this fiscal against the present four per cent and eventually phased out by 2007-08.

However, the empowered committee on VAT had to set up a working group on phasing out of CST due to lack of consensus between states and the Centre.

On March 8, Rajasthan Chief Minister Vasundhara Raje announced in the Budget for 2006-07 that VAT would come into force from this fiscal, as the state was losing out on incentives provided by the Centre.

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The Federation of Rajasthan Traders and Industrialists, which had called for a state-wide shutdown today to protest VAT, withdrew the call following assurances from the Chief Minister that their grievances would be redressed.

In Jharkhand, the government has kept as many as 62 items out of VAT purview, while including high-speed diesel, aviation fuel, liquor, molasses, narcotics and petrol in the 20 per cent tax bracket. 8216;8216;A total of 140 articles have been clubbed under four per cent VAT. Some other articles would have 12.5 per cent tax,8217;8217; state Finance and Commercial Taxes Minister Raghuvar Das said. Considering the large number of people living below poverty line, the NDA government has kept essential commodities, including wheat flour, maida, suji, meat, fish, egg, etc, out of VAT.

In Madhya Pradesh, this list will include 53 commodities, including sugar, foodgrains, pulses and wheat flour.

Finance Ministry sources said Chhattisgarh too had switched over to VAT, and so has Gujarat, one of India8217;s most industrialised states.