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VAT suffers fresh setback

New Delhi, March 19: Finance minister P. Chidambaram's plan to usher in a nation-wide value-added tax (VAT) regime suffered a jolt today when the chief ministers of five BJP-ruled states decided not to introduce the new system from April 1.

A meeting of the chief ministers and the finance ministers of the five states ' Madhya Pradesh, Rajasthan, Chattisgarh, Jharkhand and Gujarat ' decided against implementing VAT till the Centre spelled out a roadmap for phasing out the central sales tax. The meeting was chaired by BJP chief L. K. Advani.

VAT, which seeks to replace the existing state taxes on goods and services, is proposed to be levied on the difference between the sale price of goods or services and their cost.

There will be two basic rates of 4 per cent and 12.5 per cent; a special rate of 1 per cent on bullion, besides a zero rate for social goods.

Though BJP favoured VAT when it was in power and unsuccessfully tried to introduce it several times, its recent opposition stems from the fact that traders, who are close to the party, are not comfortable with the new system.

In fact, two trade bodies with BJP leanings ' Confederation of All India Traders and Bharat Udyog Vyapar Mandal ' were invited to today's conclave and made presentations against VAT.

Though the chief ministers termed VAT a 'progressive tax system', they maintained it should be 'uniformly implemented' and argued that it could not be implemented when states like Uttar Pradesh and Tamil Nadu had reservations against it. 'There will be a lot of chaos and confusion.'

While Uttar Pradesh has decided not to introduce VAT till its trading lobby agrees, Tamil Nadu has expressed reservations but has not yet formally jettisoned it.

Former finance minister Yashwant Sinha, who had tried to usher in the tax regime during his tenure, told newspersons after the meeting that all the BJP-ruled states were 'fully prepared' for VAT but 'the country as a whole is not prepared for it'.

'The government should not make it a prestige issue and discuss with the state governments and redress the genuine grievances of the traders,' Sinha said.

Chidambaram has already said the central sales tax will be replaced in two phases. In the first phase, from April 1 this year, it will be brought down to 2 per cent from the current 4 per cent. The sales tax will be scrapped altogether in the second phase though no time limit has been set.

CST, levied on inter-state sale transactions, yields Rs 15,000 crore in revenues. The Centre has indicated that it will transfer up to Rs 5,000 crore to states as compensation for revenues they might lose for switching over to VAT.

Madhya Pradesh chief minister Babu Lal Gaur, Rajasthan chief minister Vasundhara Raje, Chattisgarh chief minister Raman Singh, Jharkhand chief minister Arjun Munda, Gujarat finance minister Vajubhai Vala and former finance minister Jaswant Singh were among those present at today's meeting.

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