How BJP said yes yes to VAT before it said no no

That was what the BJP and its leaders said about value-added tax when they were in power—they even enshrined VAT in their election manifesto, championed it in and outside Parliament, prepared the ground for the progressive tax system by getting 16 states to come on board.

But that was then. Now VAT is a no-no for the BJP. Five states where it is in power have refused to come on board when the VAT bus rolled six days ago.

The party’s fig leaf now is that traders are not familiar with the paper-work. And that Central Sales Tax (CST, which is being phased out over the next three years) and VAT cannot co-exist. Ask former Finance Minister Yashwant Sinha, and he says, ‘‘It is a good arrangement and the BJP is not opposed to it, but there are concerns.’’

Here, then, is a brief reminder to the party:

• NDA Manifesto, April 8, 2004 Economic Reforms:
After improving tax-to-GDP ratio, VAT was the most important economic reform suggested by the NDA. ‘‘States will be given incentives to switch over to VAT. The Centre will ensure a hassle-free transition to the new tax regime, especially for small traders and businesses.’’

• A B Vajpayee, Dec 21, 2002
At the NDC meeting with all Chief Ministers, the then Prime Minister said: ‘‘We should ensure that the VAT regime is implemented in all States from April 1, 2003. This will open the door to enhance revenues for the States.’’

• Feb 2003, Budget Speech of Jaswant Singh:
‘‘All States and Union Territories are to introduce VAT from April, 2003. This will lead to avoidance of cascading of taxes and increased revenues. However, to compensate States for possible revenue loss in the initial years, the Centre will compensate 100 per cent of the loss in the first year, 75 per cent in the second and 50 per cent in the third year.’’

• Feb 2000, Budget Speech, Yashwant Sinha:
‘‘I am convinced that nothing short of this (uniform CENVAT) can provide long-term stability, remove uncertainties in the mind of industry, and eliminate disputes of classification. This will also encourage the states to implement their agreed programme for converting their sales taxes into VAT by April 1, 2001.’’

• January 8, 2002, Narendra Modi, Chief Minister, Gujarat:
‘‘As far as tax regime is concerned, here again, our approach would be to reduce the overall rates while improving the tax compliance. We are also going to remove the cascading effect of Sales Tax in the implementation of VAT regime, which we hope to bring about by April 2002.’’

• Feb 14, 2003, MPs meeting with Jaswant Singh:
MPs, cutting across party lines, expressed strong support for the introduction of VAT. Addressing the meeting, Singh said: ‘‘Introduction of State-level VAT is one of the most important fiscal reforms which would make the commodity taxation system simpler and more transparent and is also expected to improve the revenues of the States.’’

So, what are the BJP’s concerns now? Sinha lists them out: ‘‘We don’t know what will happen to prices, whether VAT will be all over the country including inter-state trade, and what will happen to states like Uttaranchal, Uttar Pradesh and Tamil Nadu which have not passed their VAT legislations in their Assemblies.’’

The fact of the matter is that when VAT was scheduled to be implemented during the NDA regime, there was no exercise on what impact it would have on prices. And, of course, VAT implementation in states was always the first step, to be followed by inter-state VAT implementation.

As far as the states not on board, the stand has always been the same: one of gentle persuasion by the Centre as well as the Empowered Committee of states on VAT headed by Ashim Dasgupta.

Since 2001, the BJP regime and Dasgupta have been getting the Congress states on board. Remember, when the NDA government wanted to implement VAT in June, 2003, it had support from 16 states, including the Congress-ruled Maharashtra and Karnataka and even RJD-ruled Bihar.

Now, his job is to convince the BJP to rise above politics and join a tax regime that spells good economics.