BJP’s hypocrisy over state value added tax (VAT) is simply deplorable. We need to remind the party that the proposal to implement the state VAT was part of the NDA programme to make India a single national market and to do away with the harmful effects of cascading taxes. The aim of the VAT was to give Indian industry the same competitive advantage that, say, its Chinese counterpart has. It is clearly in the national interest — which the party has often sworn by. The party’s decision not to support the effort to create a sound and modern tax system for India, just because the NDA is no longer in power, is pettiness of an order that raises serious questions about the BJP’s credentials as a modern party with a reform-minded outlook and an ethical foundation.The excuse that the level of preparedness for VAT is low, or that the central sales tax (CST) has not been phased out, are flimsy in the extreme. These issues are not new and are, moreover, in the hands of the states. CST has been discussed at the empowered committee on state VAT and the very chief ministers who are opting out now had agreed to a mutually-accepted plan of action. The move towards the state VAT had been in the works for several years. The empowered committee on state VAT was finally successful in getting most states — with the exception of UP — to agree to join a harmonised system of state VAT. This important taxation reform is the first step towards a single tax for the country — the Goods and Services Tax (GST) — that is already in place in much of the world, including our South Asian neighbours like Pakistan, Bangladesh and Sri Lanka. Now, thanks to the BJP’s petty politics and cynical outlook, the process could get delayed by years.The Centre needs to accept that political consensus on the issue may not be possible. The strategy should be to make VAT an extremely attractive proposition for states. It must now create a modern Tax Information Network (TIN) type IT system on which the tax rides and offer the system at its own cost to the states which are courageous enough to adopt the new system. States with a well-implemented VAT will attract new industries. This will create pressure on those opting out of the system to adopt the VAT. The Centre must no longer adopt a hands-off approach to this initiative. If VAT is not implemented properly, it can become a source of corruption and irritation for industry and for traders. To generate political pressures in the non-VAT states to implement VAT, the Centre’s focus should now move from merely compensating states for revenue loss to making it a system that industry votes for with its feet. Loss of business would push states — even those that have BJP governments at present — to quickly fall in line.
