The Telegraph
Since 1st March, 1999
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Second chance for VAT

New Delhi, June 18: A nationwide value-added tax (VAT) regime for all goods will be introduced from April 1, replacing a plethora of state taxes.

State finance ministers and Union finance minister P. Chidambaram today decided that the levy would be brought in despite objections from three states, including the most populous — Uttar Pradesh.

“We can happily say that there is a broad consensus among states to introduce state-level VAT from April,” Asim Dasgupta, Bengal finance minister and chairman of empowered committee on VAT, said.

Although the Centre had suggested October 1 as the kick-off date, objections from some states pushed back the deadline by six months. However, Dasgupta made it clear that even if some states decided to stay out of the loop, “the deadline would be kept”.

The Centre also decided that the new levy would replace the central sales tax in two phases. In the first, from April 1, 2005, it will be brought down to 2 per cent from 4 per cent; it will be scrapped in the second phase, for which no time limit has been set.

The Centre will also work out a formula for compensating states, that claim they will be losing money by bringing in VAT, after the budget session of Parliament. In fact, “certain comforting statements” made by Chidambaram on compensation clinched the issue for many wavering states.

However, the meeting could not decide on the nitty-gritty of the Service Tax Bill, which the Congress-led coalition government has to introduce in Parliament. The bill will allow states to levy tax on a host of services as part of a package to compensate them for the losses from withdrawal of levies.

Last year, Parliament passed an enabling legislation, which put services on the concurrent list. However, while clause 92C empowers the states to levy and retain service taxes, 268A allows the Centre to levy tax on other services and retain the money collected from these in full, or share it with states.

The states today demanded that the Centre should share with them all service taxes it collects and not retain any of it in full. This conflict is expected to be resolved in the next few meetings of state finance ministers with Chidambaram. Dasgupta said he and Chidambaram would be touring recalcitrant states and trading centres where traders remained unconvinced, in an effort to bring them around to accepting VAT.

Last year, the BJP-led government had tried to bring in a nationwide VAT but intense lobbying by north Indian traders and a handful of states forced it to junk the move.

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