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Consensus before VAT rollout

New Delhi, July 7: The value-added tax (VAT) regime will not be implemented any time soon.

The empowered committee on value-added tax headed by Bengal finance minister Asim Dasgupta today accepted the Centre’s plan to implement VAT nationwide at one go instead of opting for a staggered rollout.

The decision will be welcomed by traders all over the country who were spooked by the new tax regime that is designed to replace a cascading set of levies on manufactured products, including sales tax levied by the Centre and states.

“It is a very major decision for the country as a whole. When we introduce it, we want the acceptance to be total,” VAT panel chairman Asim Dasgupta said after a meeting of the empowered committee.

Dasgupta, who had been cast in the unlikely role of a pinch-hitter for a tax reform that no one seemed to want and very few have any clarity about, had all along insisted that the VAT would be implemented by 16 states in the first stage. The states that wanted to opt out initially could jump on to the bandwagon later.

VAT was supposed to be introduced from June 1 but was later deferred by over a month when several states failed to pass enabling legislation to introduce the new levy.

The BJP-led NDA government, which is preparing for crucial elections in four states this year followed by a general election early next year, has been under pressure from traders — its strong vote base -- to put off the introduction of VAT.

It is almost certain that VAT will now go into a loop. Dasgupta indicated that the next step will be to arrive at a national consensus on the introduction of VAT with political parties, which is expected within a few months.

Dasgupta said, “States were unhappy with the finance minister’s announcement. But we have taken a view that the political parties should be consulted before a new deadline is set.”

Unlike before, no time frame has now been set for the nationwide implementation of VAT, Dasgupta said. The VAT panel will meet finance minister Jaswant Singh within a fortnight to set the date for the meeting with major political parties.

The levy has been opposed by traders who fear that it will severely circumscribe the manner in which they operate by making it more difficult to dodge taxes.

After the June 1 deadline came and went, the panel insisted that VAT could be introduced in about 11 states, accounting for two-thirds of India’s trade and industry, in the first stage.

States like West Bengal, Andhra Pradesh, Maharashtra, Gujarat, Karnataka, Madhya Pradesh, Kerala, Assam, Meghalaya, Tamil Nadu and Haryana, accounting for two-thirds of country’s trade and industry, wanted to implement VAT from June. But many of them failed to get the President’s assent to their VAT bills while others did not even get them passed in their respective assemblies.

The states had earlier requested for a partial introduction of VAT, which was rejected by the Centre. Finance minister Jaswant Singh was not in favour of a ‘patchwork’ approach in phasing out central sales tax or doling out relief to states which expected revenue loss once VAT became operational.

The decision taken earlier on the rates of VAT on different items, remain unchanged. The states have agreed on five VAT rates — zero per cent for items related to national security, 1 per cent on precious metals, 4 per cent on agri and essential industrial inputs, 12.5 per cent for most other items and 20 per cent for demerit goods, including hazardous chemicals.

Dasgupta also said the panel will fill up whatever gaps or incompleteness remain in the VAT regime. Dasgupta described today's meeting as one that was meant for stock taking.

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