| (From left) Ficci vice-president Y. K. Modi, Reliance chairman Anil Ambani and wife Tina Ambani in New Delhi on Wednesday. Picture by Rajesh Kumar
New Delhi, Nov. 13: The government will provide a safety net to the states to compensate them for any loss of revenue arising from the implementation of the value added tax (VAT) system to be implemented from April 1 next year.
“In case the states lose out on revenue with implementation of VAT, there will be a mechanism to compensate loss of revenue. They will be provided a safety net,” finance secretary S. Narayan said here today.
Narayan was speaking at an international conference on ‘Taxation policy for accelerated investment: domestic and foreign,’ organised by Ficci. Stating that there is a consensus as well as compulsion that states get into the VAT regime, he blamed multiplicity of taxes for non-transparency in the tax structure.
Narayan said the government was against tax incentives to boost investment. “The tax system should be competitive and certainly not act as an incentive to investment,” he said. He added that past experience has shown that such incentives have not helped increase investment.
Narayan added that a multi-crore project for computer networking of the tax department, approved by the Cabinet yesterday, would bring big changes in the tax administration. It intends to reduce the interface between the assessing officer and the assessee, he said.
Anil Ambani, vice chairman of Reliance Industries Ltd, agreed with Narayan on the VAT issue. “Unlike the European Union, our common market is fragmented as states have different tax policies,” he said.
While stating that taxation was a subject that his father, the late Dhirubhai Ambani paid close attention to, Ambani said the Income Tax Act need not be changed every year during the budget.
“The Companies Act does not undergo change every year at the time of the budget...so why should the Income Tax Act undergo modifications,” he asked. “If there is need to amend the income tax, it should happen in four to five years, like the Companies Act”.
The changes in the Income Tax Act should take place after due consultation of the draft, and by reference to the Parliamentary committees, as in the case of the Companies Act, he said.