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Five more states join VAT club

New Delhi, April 1: Five BJP-ruled states today joined the nation-wide value-added tax regime, taking the number of states who have opted for the new system to 27.

However, two major states ' Uttar Pradesh and Tamil Nadu ' still remain outside the purview of VAT.

The five BJP-ruled states of Chhattisgarh, Gujarat, Jharkhand, Madhya Pradesh and Rajasthan issued separate notifications to introduce the VAT system, under which tax is imposed only on value-additions to products.

Traders would be able to recover VAT on raw materials and intermediate goods.

Small businesses with a turnover of up to Rs 5 lakh are exempt from the new tax, which has two main slabs of 4 per cent and 12.5 per cent.

The five BJP-ruled states, along with Tamil Nadu and Uttar Pradesh, had earlier refused to implement the new tax citing protests by traders and the absence of a clear cut roadmap for the abolition of central sales tax (CST).

CST was earlier scheduled to be cut to 2 per cent from 4 per cent this fiscal and eventually phased out by 2007-08.

However, the empowered committee on VAT had to set up a working group on phasing out of CST due to lack of consensus between states and the Centre.

On March 8, Rajasthan chief minister Vasundhara Raje announced in the state budget for 2006-07 that VAT would come into force from fiscal 2006-07, as the state was losing out on incentives provided by the Centre.

The Federation of Rajasthan Traders and Industrialists, which had called for a state-wide shutdown today to protest VAT, withdrew the call following assurances from the chief minister that their grievances would be redressed.

In Jharkhand, the government kept as many as 62 items out of the VAT purview, while including high-speed diesel, aviation fuel, liquor, molasses, narcotics and petrol in the 20 per cent tax bracket.

A total of 140 articles have been clubbed under 4 per cent VAT. Some other articles would have a 12.5 per cent tax.

Madhya Pradesh made 53 commodities, including sugar, foodgrain, pulses and wheat flour, tax-free for consumers as it ushered in VAT for a uniform tax pattern in the country.

The states that joined the VAT regime last year reported a 16 per cent growth in tax revenues in the first five months of the just-concluded financial year.

Analysts feel that seeing the surge in revenue, the five BJP-ruled states decided to jump on to the VAT bandwagon.

According to sources, the empowered committee on VAT, which is headed by Bengal finance minister Asim Dasgupta, is likely to persuade Uttar Pradesh and Tamil Nadu to join the new system later this year.

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