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VAT launch delay due to Dec. 13 incident
By Our Special Correspondent
NEW DELHI, JAN. 23. The December 13 terrorist strikes have affected the launch of the Value Added Tax (VAT) in States which is now being postponed by one year to April 1, 2003. The original target of April 1 this year has been missed because the contingent legislation needed to implement the introduction of VAT could not be passed due to the early adjournment of Parliament in the winter session.
This was disclosed here today by the convener of the empowered committee of State Finance Ministers on VAT, the West Bengal Finance Minister, Ashim Dasgupta, who said the delay will be used to educate consumers and industry about the new system. Besides, it will enable all 28 States to launch VAT simultaneously on April 1, 2003 instead of the earlier plan to introduce it in 16 non-special category States initially and in others after a year.
The Finance Minister, Yashwant Sinha, also said the delay will be used to clear apprehensions in the minds of the public as well as trade and industry about loss of revenue and higher prices due to the new system.
Dr. Dasgupta told newspersons at the conclusion of the State Finance Ministers conference on VAT that all preparations had been made by the 16 States including Jharkhand for introduction of VAT by April 1 this year. These States had submitted the draft legislation for this purpose. But with the terrorist strike on Parliament, some key legislation required to implement the new system has had to be deferred till the Budget session. It was thus decided after consultation with the Finance Minister, he said, to postpone the launch for all States till April 1, 2003.
The option of launching VAT in the middle of the year - October 1, 2002 - was considered, he said but would have created accounting problems. The advantage of the delay was that the fragmentation which would have been created by only 16 States introducing VAT has now been eliminated.
Replying to questions, Mr. Yashwant Sinha, conceded that terrorism has taken its toll on the VAT schedule. At the same time, he felt that it would give the States more time to put administrative arrangements into place and training employees for the new system. Besides, the economy is passing through a slowdown and any uncertainty such as introducing new tax systems may not be helpful at this stage. He conceded that there is bound to be disappointment over the delay but said that launch of VAT is a complex system and has taken three to four years in most countries.
Outlining the reasons for the postponement, Dr. Dasgupta said an amendment to the Central Sales Tax Act is needed since VAT provides for a set-off of this tax on inter-state sales. Secondly, States were to be given additional powers of taxation required for additional excise duty on items. Thirdly, a constitutional amendment was needed to give States additional powers for taxation of services. These legislative changes have had to be deferred now to the Budget session.
In the case of services taxation, he said the commtitee set up to consider the issue has been found unacceptable by the empowered committee. But the Finance Minister has agreed to review the proposals. The Finance Minister has agreed to compensate States through Central grants for any loss in revenue.
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