CHENNAI: The State Government has come out with the text of the Tamil Nadu Value Added Tax Bill that on becoming law will replace the Tamil Nadu General Sales Tax Act and the Tamil Nadu Additional Sales Tax Act.

It will usher in a State-level value added tax (VAT) at a date to be notified by the Government.

The statement of objects and reasons of the Bill, dated October 28, notes that the 2006-07 State Budget announced that VAT would be introduced from January 1, 2007. Accordingly, the State Government has decided to repeal the GST Act and enact a new legislation for the levy of VAT, the bill introduced by Commercial Taxes Minister S.N.M. Ubayadullah says. The bill is available on www.tnsalestax.com

Under the first schedule of the Bill, three rates of VAT — one, four and 12.5 per cent — for goods have been fixed. The other schedules pertain to a compounded rate for hotels, restaurants and sweet stalls; goods taxable under one per cent (for certain categories of dealers); and exempted goods. The schedules have been published without the goods covered under them.

While dealers having annual total turnover below Rs.5 lakh are exempted, casual traders and agents of non-resident dealers irrespective of their total turnover will be liable to pay VAT. However dealers whose annual total turnover in respect of purchase and sale within the State is not less than Rs.10 lakh would be required to pay VAT. Further, every dealer, who effects second and subsequent sales of goods purchased within the State and whose annual turnover is less than Rs.50 lakh will have an option to pay (alternative) tax not exceeding one per cent. Such dealers, however, would not be entitled to input tax credit on goods purchased by them.

The Bill says that every dealer whose turnover in respect of purchase and sale within the State in any year is above Rs.10 lakh and every other dealer whose annual turnover is above Rs.5 lakh needs to register under the VAT regime. It also provides for payment of tax at compounded rates by works contractors.

Ready-to-eat unbranded foods

The Tamil Nadu Value Added Tax Act 2006 stipulates that every dealer should pay 12.5 per cent tax on the sale of ready-to-eat unbranded foods, including sweets, savouries, unbranded non-alcoholic drinks and beverages served in or catered by recognised star hotels and their restaurants. All other dealers will, however, pay the tax at the rate of four per cent on the sale of such edible items.

Every dealer whose total annual turnover is between Rs.10 lakh and Rs.50 lakh on the sale of such items would have an option to pay the compounded rate for hotels, restaurants and sweet stalls.

The State Government has been empowered to notify with prospective or retrospective effect an exemption or reduction in rate in respect of any tax payable under the VAT Act.

The Bill also provides for tax deferrals to new industrial units and remission of unexpired tax benefits offered to existing companies. These provisions are of particular interest from the point of view of attracting investments into the State.

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