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Journalism of Courage
Will the country keep its date with value-added tax (VAT)? Going by the present pace — 27 states are VAT-ready and the rest say they will be compliant by January 2005 — the April 1, 2005 deadline will be met.
But apprehensions remain. For one, states and the Centre are discussing sharing of service tax under the VAT regime. While the Centre is keen to keep the bulk of services under its ambit of taxes, the states are not happy.
Finance Minister P. Chidamabram and Chairman of the Empowered Committee of State Finance Ministers Ashim Dasgupta are hopeful that the issue will be sorted out soon. Avers Ramesh Chandra, Secretary of the Empowered Committee, “Things are on course and with the blueprint and IT system in place, VAT should be able to meet its deadline in 2005.’’
As the blueprint stands, two basic VAT rates of 4 per cent and 12.5 per cent for 530 items are expected to be in place after April 1, 2005, with a list of specific category of tax-exempted goods. A special VAT rate of 1 per cent will also be implemented for gold and silver ornaments. Few goods outside VAT will continue to be taxed under the Sales Tax Act.
A pilot project of the IT system — called National Tax Information Exchange System (TINXSYS) — has taken off in 13 states from November 1, 2004, and will be on for six months. Once extended to all states, this IT system will integrate all state tax transactions under one roof and provide digital access to all inter-state transactions. The system is expected to plug tax evasion.
The Central government has also agreed to compensate the state governments if there is any loss due to transition to VAT. While in the first year, the state governments will get 100 per cent compensation, in the second year this will be 75 per cent and in the third year 50 per cent.
However, Indian Inc continues to be apprehensive. The basic premise of VAT is to move from a multiple tax structure to a one rate tax structure and that might not just happen. The blueprint itself states that octroi will continue in the present form. And despite the IT system, checkposts will continue.
Traders are also apprehensive about the Rs 5-lakh threshold limit for VAT. For obvious reasons, small traders think the limit is low, particularly as the bill gives excessive power to commissioners and other tax officials. However, the Empowered Committee has added that this limit could well be raised to Rs 20 lakh later.
But even if VAT comes into place, will it lead to greater compliance, transparency and generate additional revenue for the government?
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THE PROGRESS…
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• The Deadline: April 1, 2005; 27 states on board, the rest expected to legislate VAT by January, 2005 |
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