The Hindu : VAT given the go-by for now

Online edition of India's National Newspaper
Wednesday, Apr 02, 2003

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VAT given the go-by for now

By Our Special Correspondent

NEW DELHI APRIL 1. Almost all the States have given the go-by to the April 1 deadline for switching to the value added tax (VAT) system despite having given a commitment to do so at the National Development Council meeting late last year. A meeting scheduled for April 8 of the Empowered Committee of the State Finance Ministers is now expected to work out the new implementation schedule but some doubts have already cropped up whether the meeting will take place as scheduled or not.

While the lack of preparedness was the main reason for the States' inability to move over to the new taxation system, the root cause, however, was political opposition to the move. The powerful traders lobby successfully organised a two-day countrywide bandh against introduction of VAT and this had the tacit support of many political parties as well.

According to official sources, many States ran out of steam to prepare the necessary legislation once States such as Delhi, Punjab and Himachal Pradesh openly announced that they would not be switching to VAT on April 1.

Political delegations of the BJP and the Congress also called on separately the Union Finance Minister, Jaswant Singh, to press for its postponement.

According to official information, as of today only one State had cleared the necessary legislation for implementation of VAT while six others have sent it for Presidential assent. Of the 28 States, only Madhya Pradesh had obtained the Presidential nod while Karnataka and Andhra Pradesh sent in their VAT Bills to the Centre as late as this evening, Finance Ministry officials said.

West Bengal and Gujarat had sent their Bills on Saturday while Maharashtra and Kerala sent it this Monday. But, as many as 20 States are not ready with their VAT legislation or have not presented them for the Presidential nod. Once the VAT Bills are approved by the State Assemblies, they are reviewed by the Union Finance Ministry and then sent to the President.

Without passage of the VAT legislation, the new tax cannot be imposed, the Finance Ministry officials said.

The delay in VAT implementation is taking place despite the Centre's promise to fully compensate the States which suffer revenue loss due to the new tax regime. Moreover, the Centre would also phase out the Central Sales Tax (CST) from four per cent to two per cent in the first year when VAT is put in place. Other State-level taxes like turnover tax and sales tax would also go.

"Unless every State implements VAT, it is not possible for the Centre to phase out CST. You cannot have differential rates in two neighbouring States,'' official sources said.

Consequently, countrywide VAT is not likely in the immediate future since the States going in for elections this year would like to postpone it till after the polls.

Next year, apart from some of the State Assemblies, the general elections are due.

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