New deadline for VAT

After failing to meet more than five deadlines for implementation of Value Added Tax VAT, States have finally reached a consensus to put i...

After failing to meet more than five deadlines for implementation of Value Added Tax VAT, States have finally reached a consensus to put in place a nationwide VAT mechanism from April, 2005. The move is expected to increase revenues of States significantly and enable them improve their financial health.

After a meeting with the Finance Minister P. Chidambaram, chairman of Empowered Committee on VAT, West Bengal FM Asim Dasgupta said: 8216;8216;After going through the entire interactions, we can happily say that there is a broad consensus among States to introduce state-level VAT beginning April 2005.8217;8217; The decision to switch over to the new tax regime was taken by the States after Chidambaram made 8216;8216;certain comforting statements8217;8217; regarding compensation, Dasgupta said.

Any possible loss on account of introduction of VAT or Central Sales Tax may be examined and compensated for on a positive attitude by the Central government, he said referring to Chidambaram8217;s assurance.

This was the first meeting on VAT after the UPA government assumed office. VAT, whose implementation has been deferred many times, missed the last deadline of April 2003 as very few states were prepared with the legislations while many others did not consider it politically favourable before elections with stiff resistance from traders.

States had earlier demanded a package including compensation for any loss of revenue when states switch over to VAT for which budgetary allocation was also made by the NDA government.

Though the CMP has expressed commitment for an early introduction of VAT, Chidambaram has made it clear that it would be implemented only after all arrangements so that the decision becomes 8216;8216;irrevocable8217;8217;.

Traders have opposed VAT as they feared that it would increase their hardship. In a statement issued today, the Confederation of All India Traders said they are seeking the opinions of thousands of local trade bodies. CAIT has convened a meeting on July 13-14 to formulate future course of action on VAT. Dasgupta said today8217;s meeting only focussed on the VAT issue and the service tax would be taken up at a separate meeting later.

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He said the Finance Minister had assured the state Finance Ministers that he will have review of the service tax Bill and would consult the states in this regard. Dasgupta said more than 60 meetings have been held for implementation of VAT.

He said the legislation will have to be enacted by all the state government for implementation of state level VAT and that all the 29 states have submitted their view point on it and quite a few of the states had got the legislative approval.

Dasgupta said during the meeting the state governments have also demanded doing away with the relevant schedule of the act that allows Centre to keep all the proceeds of tax without sharing it with the States. He said barring two or three states which have some practical problems, 85 pc of the states are willing to go ahead with implementation of VAT.