The Telegraph
Since 1st March, 1999
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Debate on the finance bill is over and the finance minister has provided concessions to edible oils, textiles, information technology imports, special economic zones, 14 drought-affected states and political parties (on capital gains). Such concessions are not surprising. What is surprising is the finance minister’s going out of his way to announce that value-added tax is impossible from June 1, the new target date after the April 1 deadline was missed. The chairman of the empowered committee of state chief ministers, Mr Asim Dasgputa, claims that June 1 is still on the cards. The citizen is therefore puzzled as to who is right — the Union finance minister or a state-level one' There are several reasons behind opposition to VAT and that may perhaps offer a clue. First, there is the question of state-level revenue losses. With phased Central support, service-sector taxation at state level, a core revenue-neutral rate and phased elimination of Central sales tax, this cannot be as serious an issue as was originally the case. Second, states are not prepared with legislation, rules and dealer registration systems. VAT is an integral whole and cannot be implemented unless all states come on board. Mr Dasgupta tells us that 16 states are ready to implement the June 1 deadline and other states will come on board later in 2003-04.

In any case, this is a matter for states to sort out, and Mr Jaswant Singh was right when he touted the earlier line about the VAT ball being in the state courts. Third, there was the matter of greater compliance costs faced by small business. With thresholds becoming more transparent, that cannot be an issue either. This leaves the fourth and most important reason, an end to the present evasion of indirect taxes. Estimates are that 40 per cent of legitimate indirect taxes are evaded and this evasion argument is something that no politician wishes to admit. From arguing that states need to sort out VAT, why has Mr Jaswant Singh shifted stance' Why is the finance minister certain that VAT is impossible from June 1' Could it be the case that with state-level elections this year and Central elections next year and considerable support among the trading community, the Bharatiya Janata Party does not wish to push for VAT' As with opening up foreign direct investment (the elusive N.K. Singh committee’s recommendations) and privatization (especially Indian Airlines and Air India), apparently unpopular decisions that rile the Swadeshi Jagran Manch or other components of the extended BJP family will indefinitely be postponed. If that is the case, the sooner there are general elections, the better. Only a new government will take the unfinished agenda of reforms seriously.

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