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Journalism of Courage
The country8217;s most ambitious tax reform since Independence is in trouble and tomorrow8217;s meeting of the empowered committee on VAT will be an exercise in damage control.
Till a couple of months back, only Uttar Pradesh and a couple of North-Eastern states were reluctant to join the nationwide exercise. Now Chhattisgarh and Rajasthan have also dropped out while Gujarat and Tamil Nadu are poised to join them. Madhya Pradesh and Uttaranchal have suddenly become non-committal, too.
Asim Dasgupta, West Bengal Finance Minister and chairman of the VAT committee knows he has his task cut out if the exercise is to be launched smoothly across the country on April 1.
8220;I have called for a meeting on Monday. Let us wait till I hear what state officials and ministers concerned have to say,8221; he told The Indian Express.
Dasgupta8217;s problems are two-fold. First, the lobbies against VAT have come alive again. Tax-dodging traders had tried to persuade their states not to join in the exercise, but their governments had overruled them because other states were all on board.
Now with their neighbours dropping out, the propaganda threatens to derail VAT even in states that are committed to it.
Chhattisgarh, for example, has dropped out citing lack of consensus on VAT. But its own experience shows the amount of tax that has historically been evaded.
Despite no new taxes being levied, tax receipts in Chhattisgarh have risen from Rs 550 crore when the state was formed to Rs 1,100 crore in 2001-02 to Rs 1,881 crore this year and a projected Rs 2,100 crore in the coming year.
Reason: The huge tax evasion was gradually being unearthed.
VAT would have reduced this evasion even further, officials admit. Instead, the government has given in to the traders8217; lobby and Srichand Sundrani, general secretary of the Chhattisgarh Chamber of Commerce and Industry has renewed his attack on VAT, claiming: 8220;The prices of goods will go up. The tribals and BPL families will be hit.8221;
Chhattisgarh8217;s about-turn encourages second thoughts in neighbouring Madhya Pradesh. Now the state8217;s Finance Minister Raghavji is saying that VAT will only be implemented along with other states. And what if the others pulled out? 8220;We will face that when it happens,8221; Raghavji said.
Similarly, Rajasthan8217;s opting out has caused concern in Gujarat. UP8217;s staying out has forced Uttaranchal to do a rethink. Tamil Nadu8217;s about-turn has raised eyebrows in Karnataka. Dasgupta will have to stem the tide.
Traders have also raised the fear that if one state levies VAT8212;in which some goods will be taxed at 12.5 per cent8212;there could be a flight of sales to neighbours that don8217;t have this tax.
The Centre has offered to compensate states for a loss of revenue from switching to VAT. When everyone was on board, this was expected to be negligible. Now, it could be a real fear.
Karnataka Deputy CM Siddharamiah said his government expected a loss of Rs 1,800 crore by switching to VAT and the Centre would make that up. So he wasn8217;t bothered that Tamil Nadu was giving VAT the go-by.
Similarly Maharashtra8217;s Sales Tax Commissioner B C Khatua said: 8220;There is bound to be some revenue loss till there is compensation. But the central government has agreed to compensate us.8221;
So Gujarat8217;s possible opting out does not rattle him. But Finance Minister P Chidambaram may be a little more nervous.
With Ashwani Sharma and Smita Nair
