Online edition of India's National Newspaper
Tuesday, Jan 25, 2005

About Us
Contact Us
News: Front Page | National | Tamil Nadu | Andhra Pradesh | Karnataka | Kerala | New Delhi | Other States | International | Opinion | Business | Sport | Miscellaneous | Engagements |
Classifieds | Employment |

Opinion - Editorials Printer Friendly Page   Send this Article to a Friend


THE WHITE PAPER presented by the Empowered Committee of State Finance Ministers on State-level Valued Added Tax (VAT) is only the beginning of a much overdue reform of indirect taxation. The document rightly highlights the decade-long consultation process among States and between States and the Centre that has preceded the final decision to implement VAT in lieu of sales tax and associated taxes. The exercise strengthens the hope that the new system will be in place nationwide on April 1, 2005. The task now, as indicated by the White Paper, is to launch an effective campaign not only among trade and industry but also among the public on the rationale behind the switchover to VAT at the State level. One of the reasons for the slow progress on State-level VAT has been the fact that consumers and ordinary citizens were left out of the debate, as though tax reform concerned only governments and businesses.

The absence of public advocacy over such a long period cannot be compensated by a facile declaration in the White Paper that VAT would "help common people, traders, industrialists and also the Government" and that it is a "move towards more efficiency, equal competition and fairness in the taxation system." In the common sense perception, a tax measure cannot benefit simultaneously and in equal measure the tax collector, the trader, and the consumer. Policy-makers should boldly tell the public that the apparent paradox of "benefiting everybody" is resolved by the fact that VAT will go against tax evaders and corrupt officials. The system will do this by creating a vested interest among traders in honestly reporting their turnover and enlarging self-assessment. Smooth implementation of VAT in the face of some confusion and resistance can be ensured only with the firm support of consumers. The proposed campaign should explain how (as the White Paper points out) "in general prices will fall" and the system will ensure "rationalisation of the tax burden." The campaign must make it clear to the mass of consumers that with tax exemptions or low rates on essential commodities and inputs for manufacture and with tax-on-tax avoided, the price concerns of the poor and the economy as a whole will be taken care of. Beyond this, it must be explained that in equity terms VAT will lead to higher taxes being paid by those who consume a higher value at any point of sale on account of value added by transportation, distribution, packaging, and so on.

Many small traders are likely to opt for registration under VAT once they realise that their being part of the new system can attract customers who need tax credit against purchases. States are likely to levy a tax lower than the agreed VAT rate on the optional list of 10 items of "special importance" to them. The Empowered Committee has done well to avoid what Finance Minister P. Chidambaram has called an "all or nothing" approach. Thus it has chosen to go ahead with VAT while keeping in abeyance changes in respect of Central sales tax on inter-State sales, `declared goods', and commodities covered by additional excise duty. The call for an early decision on a role for States in the collection and appropriation of service tax is also legitimate. In making a proposal for bringing imports (presumably direct imports, since imports distributed through trade are already subject to State-level tax) into the State VAT system, the committee seems to have brought on the agenda a radical idea that asks for a type of change that the system and the rules of the revenue game are unlikely to actualise in the conceivable future.

Printer friendly page  
Send this article to Friends by E-Mail


News: Front Page | National | Tamil Nadu | Andhra Pradesh | Karnataka | Kerala | New Delhi | Other States | International | Opinion | Business | Sport | Miscellaneous | Engagements |
Classifieds | Employment | Updates: Breaking News |

News Update

The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2005, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu