VAT is finally here, teething problems begin

As late as Thursday, confusion prevailed in many states that adopted VAT over the tax rates applicable to some commodities. Lack of clarity about the functional modes of input tax set-off and taxation points in case of many commodities put industry and trade in a fix.

Maharashtra, for instance, published the VAT rate schedule only on Thursday. Even the rates published by states, more than a ‘‘permissible variation’’ from the limits set by the empowered committee of state finance ministers was noticed.

The white paper had stated that of the 550-odd goods covered by VAT, the largest number of items (about 270) would be subject to the merit rate of 4 per cent. Maharashtra, however, kept only 106 items under 4 per cent tax, and subjected most goods to higher 12.5 per cent VAT rate.

Disharmony exists even about the threshold limit for VAT exemption. While the panel of FMs allowed states to raise the threshold to Rs 10 lakh from Rs 5 lakh set earlier, Karnataka government decided to bring all traders with annual turnover of Rs 2 lakh and above under VAT.

A cursory reading of VAT rates in various states revealed that the number of items on which tax incidence would cut would be smaller than what the committee and the finance ministry had claimed. This is because, for fear of revenue loss, states began to notify larger number of items under the highest VAT rate of 12.5 per cent.