The Telegraph
Since 1st March, 1999
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Govt moves to usher in VAT on time

New Delhi, March 6: A high-level meeting held at North Block today decided that finance minister Jaswant Singh will take a clutch of draft state legislations and Ordinances as well as the central super-law bringing in value-added-tax (VAT) for Presidential assent next week. The meeting, chaired by revenue secretary C. S. Rao, decided to stick to the time-table for the nationwide introduction of VAT from April 1, as almost all state governments have sent either legislations or Ordinances on the issue.

“All states, barring just three mainline states which include Delhi, Punjab and Bihar apart from a few Northeast states, have sent their draft ordinances. We will not delay the introduction of a nationwide VAT system for them,” top finance ministry officials said.

News reports from Calcutta had suggested that VAT may not come from April 1 and a revised date may have to be chalked out as many states had not yet prepared their legislations giving effect to the new nationwide taxation system. The new set-up allows manufacturers and distributors to claim tax credit for taxes paid anywhere in the country on any of the raw materials or finished products finally assembled and sold by them, besides bringing state levies at par all over the country.

Recalcitrant states like Delhi will be left out of the loop for the time being and allowed to join later. “But we feel they will be the losers as business will bypass them if they delay in bringing their legislation or Ordinance,” officials said.

The meeting also decided that the government should finalise harmonisation of VAT between the Centre and the state within a short spell so that the teething trouble could be kept at the minimum.

Although the proposed VAT structure was criticised as imperfect at today’s meeting, members said “papering over” will be done over the next year and “we have decided to learn on the way rather than be timid and stay away from the challenge of VAT.”

States were apprehensive of revenue losses on account of VAT. However, they decided to take the risk after the Centre promised to cover all shortfall in their revenues on account of switching over to VAT this year. Besides, 75 per cent compensation would be given for 2004-05 and 50 per cent for 2005-06.

Finance ministry sources said some states are, however, still pleading that instead of partial revenue compensation for 2004-06 fiscal the government should undertake a ‘time-to-time’ review for ‘the amount needed to be compensated’. Moreover, this money should be forked out on a monthly basis and not at the end of the year.

Delhi, in fact, has been spearheading the move which tantamounts to 100 per cent compensation for the three years.

Top finance ministry officials said the VAT legislations to be put up before the President would have common provisions with respect to all important matters. The meeting also agreed that the new draft legislations on ‘constitutional amendment to enable levy of tax on services and its collection’ would be made available to the states for their suggestions before its introduction in Parliament. Currently, services are taxed only by the Centre at the rate of 8 per cent.

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