The Hindu : Consumers take up cudgels against VAT

Online edition of India's National Newspaper
Thursday, Apr 24, 2003

Southern States

Southern States - Kerala-Thiruvananthapuram

Consumers take up cudgels against VAT

By C. Maya

THIRUVANANTHAPURAM APRIL 22. Consumers in the capital city are preparing themselves to wage a war against the Value Added Tax (VAT) regime, which is slated to come into effect from June 1 onwards.

For the first time, consumers have decided to join hands with traders to oppose the new tax system, which they fear will result in total chaos and an increase in the price of all goods.

Soon after the announcement of the passing of the Bill by the Assembly, the traders' lobby had gone on a two-day hartal to protest against the implementation of the system. The medical shops too had downed shutters for a day saying that the price of medicines will go up by at least six per cent.

``In a predominantly consumer State like Kerala, a multi- point system of taxation like VAT will hike the price of goods and wipe out small traders. It will also cripple our productive sectors,'' says K. G. M Nair, a consumer activist and founder- secretary of the Consumer Protection Council of Kerala.

From the administrative point of view VAT will bring in a steady taxation system, under which the purchase of almost every product, be it automobiles, consumer durables or jewellery, will not be possible without paying tax.

Tax evasion by traders will thus become impossible, for a dealer will have to bill every item and collect tax at the sales outlet if he has to claim exemption for the tax he has paid at the manufacturers' level. The Government thus claims that the VAT regime will promote good business and bring in more revenue.

However, consumer activists point out that while all this might seem good in principle, in effect, it will only lead to increased friction between traders and sales tax officials and encourage corruption at several levels.

``Under the KGST system, one pays tax only at the retail outlet.

Under VAT, the entire distribution chain, including all categories of wholesalers, sub-dealer and retailers are brought into the tax net. In effect, the retail price of products with a long chain from the manufacturer to the consumer will go up because the traders will transfer the tax segment on to consumers.

Thus price hike should be expected in pharmaceutical products, fast moving consumer goods (FMCGs), and cement,'' points out K. G. M Nair. VAT will also become a disincentive for new productive ventures in the State, because for inter-State trade it is not applicable, he says.

``For goods bought from the neighbouring State of Tamil Nadu, there is only a single point tax. But for goods manufactured in our State, from raw material procurement to the retail stage, there is taxation at several points. For our own products, there will be no level playing field,'' Mr. Nair says.

As for traders, they will have to maintain proper records of the wholesale purchases he made and the tax he paid at the time, to claim tax credits. Proper accounting system thus becomes imperative for all traders, small or big and traders fear that small and medium traders will eventually be phased out.

``In our trading system, big supermarkets co-exist with neighbourhood shops and VAT is applicable to both segments. The latter might hardly have enough business or earnings for a streamlined accounting system. Eventually, he will be forced to shut shop,'' says a trader.

The Trivandrum Chamber of Commerce, however, has taken a very cautious stand on VAT. ``The scrupulous implementation of VAT will promote steady and honest businesses, but Government should ensure that there are no anomalies and that there are no `hidden' follies in the new taxation system,'' says Ganesan, the secretary of TCC.

``In the hierarchy of trade distributorship, since tax burden comes at several stages, many sub-dealers fear that they will be phased out. Consumers might also take to directly buying from wholesale dealers because they can quote a lesser price,'' he points out.

A section of consumers are also apprehensive that eventually, more multinational direct marketing companies will take roots here. The Consumer Protection Council will be organising awareness campaigns to educate consumers on the problem areas in VAT, Mr. Nair said.

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