No head for numbers

Most of all, consumers are confused. For 53-year-old Maharashtrian homemaker Kalpana Palande, shopping is turning out to be an extended April Fools8217; Day. 8216;8216;Everyday, my grocer has a new price slate for daily consumables. He says it8217;s because of something called VAT. I need to know if this price hike will continue,8217;8217; she says.

Chandra8217;s response displays a sense of frustration8212;and helplessness. 8216;8216;What do we do? Do we send the army to check overpricing by shopkeepers?8217;8217;

Implementation issues and teething problems were, in a sense, expected. But going by the feedback from various states that have implemented VAT, the situation will ease in a short while.

Avers West Bengal8217;s Commercial Tax Commissioner C M Bachawat, 8216;8216;There is hardly any rate variation. What is there is minor, involving barely two-three commodities. Even these will be taken care of with an appropriate decision by the empowered committee.8217;8217;

Maharashtra8217;s commissioner of sales tax B C Khatua sees no major problem cropping up. 8216;8216;Most manufacturers are well-prepared in-house to observe the changes that have come into force post-VAT,8217;8217; he adds.

What, then, are the major issues?

WHY THE VARIATIONS?

THANKS to the flexibility given to the states on rates, data circulated by the Confederation of All India Traders CAIT show that rates on 12 items varied from 12.5 per cent to 0 per cent in the seven states of West Bengal, Delhi, Punjab, Maharashtra, Andhra Pradesh, Bihar and Jammu 038; Kashmir.

The scene is more complicated because of the eight states that have stayed out of VAT. Punjab, for example, is reviewing the VAT structure. The state is also considering a rethink on the VAT structure on fertilisers and pesticides, since both Rajasthan and Haryana have excluded them from VAT.

There appears to be no easy solutions in the face of fiscal federalism. The empowered committee feels that in a federal structure one cannot implement a Goods and Services Tax GST without reforming service tax and state-level VAT and then marrying the two.

8216;8216;We have to balance federalism with flexibility of the states and the uniform rates will emerge with consensus between states,8217;8217; says Ashim Dasgupta, chairman of the empowered committee.

Everything hinges on crucial meetings scheduled for April 25 and 26. That said, the empowered committee has made it clear that the slabs prescribed will continue and a review is possible only after three months.

WHY ARE PRICES UP?

CONSUMERS, across the board, are a worried lot. As a shopper in Mumbai, Ramachandra Hippargi, says, 8216;8216;I hear everyone saying that VAT stands for Value Added Tax, but ask them what it actually means and they are at a loss.8217;8217;

His monthly shopping bill of Rs 2,000 is now being put to a VAT barometer check. 8216;8216;I am trying to keep track since everyone says the prices will increase,8217;8217; says Hippargi.

Thirty-something Rita Paresh, a resident of Mulund, is another perplexed consumer. 8216;8216;I shop for cosmetics regularly. Now the shop-owner tells me the price of shades and rubber-bands will increase,8217;8217; Paresh says, adding that she has no way of knowing whether the hike is justified or not.

The fact of the matter is that while some prices have gone up due to genuine reasons8212;as products have shifted to higher VAT rate slabs from their earlier tax rates8212;in some cases, traders and shopkeepers are taking advantage of the confusion.

The empowered committee is hard put to explain the scenario. According to Chandra, 8216;8216;Traders are playing a prank. For example, on drugs and medicines, they have got a refund of 8 per cent on the drugs manufactured before VAT came into place. Then there is a 4 per cent VAT. But they are not passing this reduction to the consumers and are, instead, charging both 8 per cent as well as 4 per cent on top of that.8217;8217;

But the committee is clearly caught in a dilemma. 8216;8216;What do we do? We had promised there will be no inspector raj for the first couple of months. If we do that, traders will then say VAT has increased harassment,8217;8217; says Chandra.

But the last resort to check such malpractice by traders is, eventually, inspection by the tax departments.

WHY SO MUCH PAPERWORK?

WHILE most states are going full steam ahead to log on to the VAT IT system TINXSYS, small traders who have not upgraded to computers are complaining of increased paperwork.

Says Narender Gupta, a grocer in Delhi, 8216;8216;VAT involves lot of paperwork. It8217;s not easy for the not-so-educated people like us. It is not easy hire a CA or buy a computer for people like us. Also, as we work from 10 am to 11 pm, where will we get the time to do the paperwork. And where do we store the papers?8217;8217;

States, however, are pushing for registration of traders under TINXSYS and with that computerisation will become an imperative even for the small traders. According to Khatua, Maharashtra is expecting a rush for new registrations for TINXSYS, which isn8217;t operational as yet.

Similarly, Karnataka8217;s finance secretary budget and resources Dr S Subramanya is upbeat that registrations under VAT are on at a brisk pace and members of the trade are widely quoting their TIN. In short, computerisation is the key. Whether Guptaji can afford it or not is another matter.

WHY IS INDIAN INC PUT OUT?

SMALL shopkeepers and traders are not the only ones trying to unravel the maze of VAT. Some of India8217;s top corporates are fearing lost sales and erosion in profitability due to confusion over the new tax regime.

Pharma major Wockhardt announced that its net profit fell by 6 per cent in March quarter as stockists stopped buying products in February and March, wary of the implications of VAT on their turnover.

8216;8216;Wockhardt maintained margins despite deceleration in domestic business due to confusion over the implementation of VAT and MRP-based excise duty during this period,8217;8217; says Wockhardt chairman Habil Khorakiwala.

What is worrying sales managers are the different rates across Indian, which is making all VAT calculations go awry. Take, for example, tea. Some states are charging the minimum rate of 4 per cent on the commodity, while others are charging the top rate of 12.5 per cent.

Fiat officials say they are planning to increase prices of their cars because of the various VAT rates prevailing in the country. 8216;8216;We are still studying the implications and waiting for reports from our dealers across the country,8217;8217; says a Fiat official.

While the implementation of VAT has brought out some problems and confusion in the tax system, there is a need for a well coordinated solution to these problems between the traders, consumers, states and the Centre.

One thing is clear: While implementation is an issue, pointing fingers will not lead the new tax system anywhere. Will there be a consensus on these taxing issues soon? Some level-headed maturity and good old common-sense will lead to a value-added solution.

Reporting by Dharmendra Jore, Dev Chatterjee, Smita Nair, Binoy Prabhakar, Sanchita Das, R K Mattoo, Bajinder Pal Singh and Rajendra Khatry