VAT cynicism!

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 8212; with the exception of UP 8212; 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 8212; the Goods and Services Tax GST 8212; 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 BJP8217;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 Centre8217;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 8212; even those that have BJP governments at present 8212; to quickly fall in line.