Sunday, Apr 13, 2003
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Tamil Nadu
By Our Special Correspondent
When economies everywhere were opening up, industries could not survive competition from imports without improving their own competitiveness. In this task, the VAT would play a major role, preventing the cascading effect of taxes (tax on tax and tax on profit margin) through rebating of taxes paid on inputs, including capital goods, and by involving the "least interference with the production process", he told a seminar organised by the Madras Management Association (MMA). The present concessional sales tax on industrial inputs at three per cent was not an adequate safeguard against the cascading effect, because products under went many processes and transactions before sale, either within the domestic market or abroad. (Under the VAT as envisaged by the Empowered Committee of State Finance Ministers, identified inputs will be subject to a VAT rate of four per cent, but are entitled to an input tax credit). For exports, the facility of zero rating of the VAT would enable easier rebating of taxes on inputs. Dr. Raja Chelliah said the VAT had been conceived mainly in the context of the formation of the European Common Market with the intention of promoting a common market and, at the same time, encouraging exports. India being federal in structure, adoption of the VAT would be advantageous just as it had been in the case of the ECM, comprising many countries. Among major economies, only the United States did not have the VAT, but operated a retail sales tax, but this model would be more burdensome on the small trader than was the VAT. He said entry tax was justifiable only in cases such as cars, where a local tax would lead to diversion of trade. Entry tax on commodities from other States and a differential (domestic) tax on customs-duty-paid imports were not justifiable, viewed from the angle of non-discrimination. Harassment and delay in tax assessment could be solved by self-assessment, he added. Shakthikanta Das, Secretary (Commercial Taxes), Tamil Nadu Government, said the State was committed to implementing the VAT from June 1. He appealed to trade and industry to pass on the benefits of the VAT (viz, absence of cost cascading and abolition of surcharge and additional sales tax) to customers, so that resistance to the VAT, based often on misconception and partly on a campaign by vested interests, did not gain public sympathy. Describing the VAT as a "very bad tax for evaders and very good tax for the law-abiding", he said entry tax (entitled to full setoff) might have to continue until the VAT system achieved stability and proved its advantages. Referring to complaints that the VAT would pose difficulties to small traders, Mr. Das pointed out that at present a compounding option would be available to those with turnover up to Rs. 10 lakhs. However, he cautioned, such traders "will lag behind" and would be unable to face competition if they were protected from pressures to modernise, as had happened in the case of the small scale industry sector. The VAT bill would be introduced in the legislature after its present a ten-day recess and the rules were meanwhile being finalised, he said.
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