The Telegraph
Since 1st March, 1999
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Pillars for VAT put in place

New Delhi, Jan. 17: Terming it as one of the biggest tax reforms in India, finance minister P. Chidambaram today presented the white paper on the value-added tax (VAT), which will come into effect from April 1.

The new tax regime, which has been approved by most of the states, will cover more than 550 goods. Of these, 46 natural and unprocessed local products would be exempt from VAT.

'This is the first document which has been collectively prepared and put out to the people by the finance ministers of all states. We have formed the rainbow coalition to undertake one of the biggest tax reforms,' Chidamaram said.

VAT will be imposed in three slabs of 1 per cent, 4 per cent and 12.5 per cent. A 1 per cent VAT will be imposed on gold and silver. Liquor, petrol, diesel, aviation turbine fuel and lottery tickets have been kept out of the state-level VAT. These products will remain under the sales tax regime, says the white paper.

The VAT document prescribes a rate of 4 per cent on a range of 270 items, including drugs and industrial products. Four per cent will be charged on all agricultural and industrial inputs, capital goods and declared goods. The structure imposes a 12.5 per cent tax on most of the remaining items.

Also, sugar, textiles and tobacco, which are covered under additional excise duties, will not come under the VAT regime for a year. The existing arrangement will continue for these items. The position will be reviewed after a year.

States have the option of exempting foodgrains in the first year.

Following opposition from some of the states, it was decided that they would have the option to either levy a 4 per cent tax or totally exempt food grains. This would be reviewed after a year.

States would be given an option to tax tea at the rate of 12.5 per cent or 4 per cent until 2006.

Asim Dasgupta, chairman of the empowered committee on VAT, said the cascading effect of tax would come down after the introduction of the system.

Dasgupta said the price of commodities will also come down accordingly.

'VAT leads to an increase in revenue for states. But in the initial years, there may be some loss in revenue for some,' he said.

The finance minister said that in a way VAT was no different from the central excise duty. 'In course of time, it is our dream to move on to goods and services tax in future,' said Chidambaram.

After the introduction of VAT, the central sales tax will also be phased out.

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