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VAT to kick off with 11 states

New Delhi, May 7: The empowered committee on value-added tax (VAT), headed by Bengal finance minister Asim Dasgupta, met Union finance minister Jaswant Singh today and informed him that 11 states, accounting for two-third of the country’s trade and industrial output, are ready to introduce value-added tax (VAT) from June 1.

“The committee assessed that 11 states are fully prepared to implement VAT by June 1. We requested the finance minister to examine the VAT Bills, to be sent to the Centre by May 8-9, and support the states in receiving the Presidential assent and compensation for revenue loss,” Dasgupta told reporters here. Five other states, including Jharkhand, Orissa, Bihar, Tripura and Goa, will follow within a month’s time, he added.

Singh has agreed to forward state legislations to the President after a final meeting with the finance ministers of the concerned states, the chairman added.

Dasgupta said the committee has worked out certain “common features” of VAT to be shared by all states and also the flexibility in taxing local items. Keeping this in mind, he said, states have modified their VAT Bills so that it conforms to a more-or-less uniform law across the nation.

Till now, the states which are ready for VAT are West Bengal, Andhra Pradesh, Maharashtra, Gujarat, Karnataka, Madhya Pradesh, Kerala, Assam and Meghalaya. Tamil Nadu and Haryana have already introduced VAT Bills in their respective assemblies.

The Bengal finance minister had pointed out to Singh that there were two ways of bringing in VAT — one, simultaneously all across the country, and the second, which he preferred, in stages with major states going in for VAT first and others following when they were ready. “This is how it happened in Europe and this is how it is still happening in Canada,” he said.

Dasgupta said the state finance ministers had told the Union finance minister that they did not require any compensation for central sales tax (CST) now that Singh had stated in Parliament that he would be retaining CST at 4 per cent and not bringing it down to 2 per cent. “However we will be pressing for some compensation to offset the losses we might still suffer by replacing state sales tax with VAT.”

In case the Centre refuses compensation, then the state finance ministers will meet again to decide further course of action. But Dasgupta pointed out that talks with Singh had been “very positive” and that many states like Haryana, Madhya Pradesh and the southern states have decided to go ahead with VAT even if compensation is not forthcoming.

He said that he had explained to Singh the necessity of reducing VAT on medicines from 12.5 per cent to 4 per cent and this was not a violation of earlier agreements with the Centre. Singh had earlier told Parliament that he could not compensate states for revenue losses if they decide to reduce VAT on goods like medicines from 12.5 per cent.

Dasgupta said the state finance ministers would also seek deputy Prime Minister L. K. Advani’s help in getting Presidential assent for the Bills in time to meet the deadline of June 1. Earlier Jaswant Singh had indicated that if VAT legislations submitted by states were not uniform and not received by his office by May 5, VAT could not be ushered in by June 1.

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