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'Switch over to VAT on Govt. radar'

By Our Special Correspondent

NEW DELHI MARCH 27. With the switch to the State-level value-added tax (VAT) system attaining political colour, the Central Government has decided to remain aloof about the whole issue. The implementation of VAT and connected hiccups are to be left to the Empowered Committee of the State Finance Ministers which has scheduled a meeting for April 8.

Sources in the Union Finance Ministry told The Hindu today that they would only play the role of facilitator to the States and would not like to be seen as the one pushing for it. "The switchover to VAT on April 1 is definitely on the radar of the Finance Ministry, but it is for the States to implement it. We can only facilitate the matter," the sources said saying that as of now, a number of States were expected to go ahead with the new tax system despite some others opting out of it for the time being.

As per the Ministry information, Maharashtra, Madhya Pradesh, Rajasthan, Haryana, West Bengal, Karnataka, Tamil Nadu, Goa and Andhra Pradesh are expected to stick to the decision to implement VAT. Consequently, the assessment is that the switch to VAT would take place early next month.

The States opting out of it for now are expected to follow suit later. "The implementation of VAT is likely to take place; only the expansion of VAT to inter-State sales and to full coverage of all goods and services could be delayed," the sources said.

The sources also explained that non-implementation of VAT by some States would not affect those who were opting for it since VAT in the initial stages was expected to cover sales within a State only. "Inter-State sales are not covered in the first instance and that is why States like Delhi and Punjab are reluctant. The `distributive nature' of trade in Delhi basically means that it serves as source point for traders in smaller towns in the neighbouring areas. Similarly, Punjab is the procurement point for Himachal and Jammu and Kashmir. Since the proposed VAT will not cover inter-State sales, traders from other States may not patronise Delhi or Punjab as they would not get any set-off. But instead of VAT if low sales tax rates continue in these two States, their business might remain intact," the sources explained.

The apprehensions of the small traders that they would face harassment because of VAT was also sought to be allayed. According to Ministry sources, it is up to States individually to decide the limit for `small traders' who would be out of the VAT net. Some States, for example, have decided to categorise businesses with less than Rs. 3 lakhs turnover as `small traders', thus giving them relief.

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